I like to say we are in a "crock pot" economy, not a "microwave" economy. While there still might be deals out there where you can purchase a property with an ARV of $100,000 for $50,000 using hard money, put $20,000 into the property, then sell the property in a short period of time for $100,000, these days are all but gone.

Finding deals with this much spread is not impossible, but the problem is WHO CAN QUALIFY TO BUY IT. Banks are not lending, are they? Since banks are not lending, prudent investors are more and more returning to time proven, lucrative techniques using seller financing to increase wealth.

However, when applying seller financing, we must also start changing the way we analyze investments to determine the deal it is profitable or not. IRR or Internal Rate of Return is one method to determine success.

The following is a case study from one of my students. It will be short and simple. She bought a house using all cash for $20,000. The house had an ARV of $60,000. She immediately sold the property for $40,000 AS IS, with $8,000 down, carried a note for $32,000 @ 9% for five years, or 60 months. How much did she really have in the deal? How many of you think this is a good investment?

What if I told you her return was a WHOPPING 57.84% yield? Not bad, wouldn't you agree? A lot better than a CD, isn't it. The Rule of 72 states if you divide your yield into 72, this reveals how many years it takes to double your money. According to the Rule of 72, if you continually use this technique, you will double your money every 1.24 years.

Are you beginning to see the "crock pot" investment can be a very lucrative alternative to depending on banks as your exit strategy? Although you are substituting cash flow in the future for immediate cash flow, your rate of return is still way above average. Add to this the elimination of the frustration of having to rehab the property, and the disappointment of not being able to find a buyer who will qualify for the loan.

Some have told me these type of deals are impossible. Not so. In a workshop I gave last month, one of attendees brought out that she completed the same type deal. Although her rate of return was lower, a measly 46%, she put a lot less money in the deal. Yes, these deals are possible, just look for them.

Of course, you will have to know how to calculate IRRs, as well as know the weaknesses and traps when applying IRRs. Yes, there are downfalls in applying IRRs. Can you sell the note in the above example and increase your yield? Yes, probably, but remember except in rare circumstances, a Note Buyer is going to require a year's seasoning before the note can be purchased, but even then this technique can produce yields into the high teens and mid 20s. 16% yield is not bad in today's market, is it?

With this in mind, selling your note or part of your note, is also being utilized by prudent investors to pay off their hard money lender in a year, or to recapitalize their investment. The "crock pot" method is looking a lot better in today's market. You have the choice of "getting rich slow" or doing nothing.

But, Tom, I do not have $20,000 to purchase the property, what can I do. There are several ways to complete these type of deals without using your own money. I just do not have time to discuss them all here. I will give one quick alternative. Why not give the property seller a note for an option to purchase his/her property? I will be discussing the nothing down techniques, as well as how to calculate IRRs to analyze properties in Dallas on Saturday, September 9th in a workshop Wealth Creation WITHOUT Banks.

The techniques I will be teaching is also a follow up the Apartments Workshop I gave month. Yes, there are ways to get into apartments for little money and even nothing down, and virtually risk free ways to flip apartments and houses. Remember, Knowledge is Power.

Please contact me if you have any questions or comments.

Copyright © H&P Capital Investments LLC
All rights reserved

If you have not attended a Note Professor "How To Get Rich with Notes" class, be sure and purchase the Note Professor Note Book manual to enhance your knowledge of creative real estate financing and note buying and selling.

"I got your news letter. It was great, purchased your (Notebook) and it was awesome. I used your renter technique and it worked also. I am getting 41% return thanks to your expert advice. I have spent hundreds and not able to do any thing thru other gurus" Gary W. Garland, TX

"It blew me away what a powerful tool notes can be. Lots of great information, worth every penny! Highly recommended."
Jeff C. The Colony/Investor

"Your manual is short and straight to the point, it's rare to buy something today that gives you your money's worth. Thank you" Stephan B. Phoenix, AZ

You will learn at least one new usable concept to increase your profit in buying or selling notes and real estate.
Tom Henderson, author

By popular demand, THE NOTE PROFESSOR NOTEBOOK is now available in easy, downloadable E- book form for a the low, affordable price of $39.95. Other products are also available, including HOW TO MAKE OBSCENE PROFITS with SMALL MONEY, and GUIDE FOR SECOND LIENS. There is also a FREE download of CHECK LIST FOR OWNER FINANCING. Simply go to the NOTE BUYERS STORE. I can think of nowhere that you can find such information packed products at such incredibly low prices. We are still working out the bugs, so if you have any problems, be sure to contact me.

FREE Real Estate
Note Newsletter and Archives
click here to subscribe and view the archives of past information packed issues through 2009. And be sure to forward this newsletter to a friend that would have an interest in Owner Financing and Real Estate NOTES.

Current ARCHIVES (end of 2009-2012)

One of my favorite readers asked to comment on the myth that innovations cause unemployment. This myth has been around since the late 1700s/early 1800s, where the Luddites proclaimed that "new" spinning machines would replace textile workers and result in massive unemployment. The same rant against progress was shouted by the socialists and union leaders during the industrial revolution, and has survived even today, where some will proclaim jobs are being taken over by ATM machines, computers, and other high tech devices. You would think this myth would die merely from the fact that mass unemployment did not happen in the textile industry in the 1700s, nor at the height of the industrial revolution in the late 19th century and early 20th century, nor in our present high tech era. I will preface this statement by clarifying that mass unemployment we are witnessing today is not a result of innovative, labor saving devices which increases productivity. As a matter of fact, just the opposite happened; employment INCREASED as a result of new inventions.

Again, we are reminded of Frederic Bastiat's "That Which Is Seen and That Which Is Not Seen" economic axiom. For example, is there any doubt when the wheel was invented, this "new" device resulted in putting human "bearers" out of business? This is what is readily seen. What is not seen are the multitudes of jobs created by the invention of the wheel. Today I want you to notice ALL the laborsaving devices which uses the wheel from automobiles to rollers on your dishwasher. Then imagine all the jobs that were created by the invention of the wheel.

The same holds true for other inventions. However, in some cases there might be a lag between the loss of jobs due to innovation and the creation of jobs resulting from innovation. As case in point is the textile industry in Great Britain in the late 1700s. When the cotton spinning machine was introduced, there were something like 5,200 individuals using spinning wheels and some 2,700 weavers making clothing by hand.

Did the innovative machine result in unemployment in the textile industry? Nope. According to a parliamentary investigation, twenty seven years later there were 320,000 people working in the cotton weaving and spinning industry. Were all these individuals personally spinning or weaving clothing? No, again. They were working in the factories using mechanization, as well as factories that produced the machines, factories that produced the thread, color die, not to mention buttons or those who were employed to transport the clothing. Are you getting an idea of how inventions CREATE net jobs rather than destroy jobs? I suggest you read the short essay "I, Pencil" by Leonard Read. This short masterpiece explains better than I what goes into making products and the jobs associated with production.

Let's take another example of innovation. How about the tractor? At the transition of the 19th century into the 20th century, farming was the product of muscle power of animals pulling plows or humans picking crops. Often a farmer could only produce enough to provide for his family, with nothing left over to sell or provide for others. Using muscle power alone, It might take the farmer a few of months to plow, plant and cultivate 50 acres. Mere subsistence was the norm for the farmer.

With the advent of the tractor, the farmer could produce in a couple of weeks, what it took him 3 months of labor to produce. Not only that, but the tractor allowed the farmer to utilize 100 acres instead of 50 acres. By being able to produce more food faster, not only could the farmer produce enough food to provide for his family, but have ample surplus to sell on the open market.

Since our farmer was able to produce more food in shorter time, this savings of time provided him the ability and opportunity to be more productive in other endeavors, such as chicken or hogs.

Was a farm worker deprived of a job with the farmer? Most definitely, this is what is seen. What is not seen are the jobs created by the manufacturing of the tractor, including but not limited to the tires, lug nuts, motor, paint, gear shift nobs, as well as the office staff necessary to run a factory, along with the desks, paper, pencils, pens, etc. that have to be produced to support the tractor factory. Instead of destroying jobs, the invention of the tractor created entire industries of jobs to support the production of the tractor. So, yes a few manual labor jobs were eliminated with the advent of the tractor, but examine the number of jobs created by the new invention.

Along with the increase of jobs, consider the increase of production which resulted in the abundance of food, which caused prices to drop, and therefore an increase in demand. In other words, at a time when mere subsistence in both rural and urban communities was the norm at best, the advent of the tractor transformed an entire nation from barely having enough to eat, into a prosperous nation, which not only produced enough food to amply supply food within its borders, but also produced food in such abundance as to virtually feed the entire world.

Some modern day Luddites contend the previous examples do not apply today because high technology is not the same as mechanical devices. Of course it is the same. Take the ATM machine for example. Here we have a high tech device that allows us to make deposits and get cash 24/7, while not even getting out of your car. When you look at the ATM machine, think of the factory that assembled the final product, the metal factories which produced elements, the programming company that made it possible to read your bank card, the plastic company that produced the cards, the ink and paper companies producing your receipt, all the other industries and staff which support these factories, not to mention the ongoing maintenance of this complex device which provides us with the convenience of banking without getting out of our cars. Think ATM machine costs jobs; think again.

But Tom, the jobs you are mentioning are middle to high skill jobs. Don't machines destroy unskilled labor jobs which are not being replaced? Well, sort of, but the rises of unemployment is not due to high technology. Remember machines often replace jobs when the cost of providing a job outweighs the cost of purchasing a high tech machine to do the same job.

What do I mean? Take the self serve gas station as an example. I remember when you would pull into a gas station and an attendant would pump your gas, check your tires and oil, and wipe your windshield. This person was unskilled labor, usually a teen, working for menial wages. Then comes the government which demands the employer not only pay this employee a higher "living wage", but also pay unemployment insurance, Social Security tax, act as a tax collector for the government, along with complying with the paperwork of OSHA, not to mention the cost of compliance, and last but not least, the employer must live under the reality that as he/she could get sued by your employee for almost anything, including firing them.

If you were given the choice of hiring a low skilled employee while being burdened with the cost and frustration of hiring this employee or purchasing a machine for self service, with none of the hassles, which would you choose. Yes, unskilled labor is being "pushed aside", but it is because of artificial constraints and costs by government on hiring unskilled labor, ranging from minimum wage, child labor laws, Social Security tax, unemployment tax, cost of collecting tax for the government, cost of complying with government regulations and the realistic constant threat of being sued by the government and/or your employee. No wonder the unemployment rate in low income neighborhoods are in double digits. Mom and Pop businesses cannot afford to hire unskilled labor.

As an observation, look at the standard of living in lesser developed countries (BTW, "lesser developed countries" is a code word for non free market nations) and more developed nations. Which nations are better off? Those relying predominately on "man power" or those who have developed enough capital to invest in inventions such as the tractor? Increased productivity has never been a net job destroyer, just the opposite.

Inventions and innovations not only increase our standard of living, but also produces jobs, otherwise how can there be an increase in the standard of living. When confronted with the myth that innovations cause unemployment, think of North and South Korea. One country lives virtually on man power alone and is on the brink of starvation but has "full employment", while the other has invested capital in labor saving devices which increases productivity, and lives in relative wealth with an amount of "unemployed". Which nation would you rather live. There is your answer concerning innovations cause unemployment.

Another subscriber asked me to comment on Obama's suing China for currency manipulation. I do not have time in this issue to address this topic in detail, but I will devote a couple sentences. To begin, China is getting somewhat a bad rap on this issue. Question: If you were China and the US owes you money, then starts printing money hand over fist, which makes the dollars you are receiving less valuable than the dollars you lent, what would you do?
A. Sit back and do nothing and just loose money
B. Devalue your currency to offset Americans printing more and more dollars.

Just food for thought. While we are on China, it has been said that many of our factories might be converted to robotics, which will result in producing more product at a lower cost, thereby allowing companies to compete with China's cheap labor. Would this not bring manufacturing back to America?

Again, I thank all of you who send in comments or request for discussions. It makes my day. If you have questions or comments, please contact me. It is from your input that I get my topics.

Remember, if you know of someone who has a note to sell, I will pay referral fees at the least, and will also split my profits if you would like to "co broker" a Note with me.

Tom Henderson /a.k.a. THE NOTE PROFESSOR .

Copyright © H&P Capital Investments LLC
All rights reserved