The following is an excerpt from THE NOTE PROFESSOR NOTEBOOK .

Using notes as an option to purchase real estate is a very lucrative method of securing real estate, while giving you time to get your ducks in a row to either get financing or to find a buyer to assign the contract. For example, say you have found a property that is a sleeper. It is a great deal, and you do not want to let it get away, but at the moment, you are in a state of financial embarrassment. You cannot immediately come up with a down payment, nor get financing. All you have to work with is a second lien note where the payor is making payments. What can you offer?

Why not offer to assign the payments to the real estate owner for an option over a period of time until you can obtain financing. If you cannot make the deal work, then there would be a time where the option would expire and the payments would revert back to you. Of course, you could also just make your option in the form of monthly payments directly to the seller, and have the amount you are paying equal the monthly payments you are receiving from the note. In other words, the payments you are making on the option will be the same as the payments you are receiving on the note. This is a form of compensating notes. Be sure to get the option notarized and recorded, or at least a memorandum of an option.

Another slant on this technique is to offer the entire note as an option for a longer period of time. You would have a problem if the note went bad during your option period. What would you do? You would have to guarantee the note payments should the payor quit paying for some reason. Notice I said guarantee the payments, and not guarantee the note.

You would then only have to come up with the payments to keep the option alive should the note go bad. This is a far cry better than having to come up with the entire amount of the note.

For those who are doing the lease option technique, if push comes to shove, you could use this as a technique, but generally, those sellers who would accept a lease option technique are motivated to the point where little option money is needed. However, this still would be a lucrative technique. Instead of giving the seller a couple of grand for the option, merely assign the payments to your existing note, or create a personal note that would match the payments received from your note. This is a cheap way of getting your option.

As always, consult an attorney and CPA. I cannot emphasize this enough.

Try this techniqueCONTACT the PROFESSOR and tell me how it worked.

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

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One day last week the front page of the Dallas Morning News had big, bold headlines HOME PRICES SHOOT UP ACROSS DALLAS AREA. The article goes on to say that concerns of the housing market getting overheated are overblown. As "proof" the Dallas market is not getting overheated, an economist from a title company is quoted as saying "The increase in sales we are seeing is a pure function of economics. This is not false hopes. It is all about jobs. Supply and demand says values are going to rise".

Throughout the weekend, national and local news were touting similar stories. Because of the shortage of homes for sale, real estate is booming in some areas claims the pundits. Many experts and economists were claiming that real estate is coming back. However, these experts and economists are making an analytical error. The mistake consists of their assuming that money supply is neutral in making economic forecasts, whether it be in the real estate market, or the economy in general. It is called the Neutrality of Money concept. It is a false doctrine, yet as we can see, it still prevails in economic thought.

In a past article we discussed the economic term "ceteris paribus", which means all things being held constant. For example, if the price of a commodity goes up, the demand will go down, if "all things are held constant". Let's apply this concept to the Dallas real estate market, and indeed the real estate market nationwide. It is true Dallas enjoys an influx of people because jobs are more plentiful than in other parts of the country. It is also true that there is a shortage of housing in the area due to the economic downturn, as well as population growth. However, this has been true for several years. Why all of a sudden is there a rush to purchase houses, not only in Dallas, but other parts of the country? The reason is the availability of financing. In other words, without the financing being available in the future as it is now, economic conditions will not be the same.

Remember, the price of real estate is directly proportional to the financing available. With the Federal Reserve pumping $45 BILLION a month into Fannie Mae, which purchases mortgages on the secondary market, it is easy to see why real estate is booming and prices are rising. However, since the "money" being pumped into Fannie Mae was created out of thin air, and interest rates are artificially low, a bubble is forming. This is almost exactly what happened in our last crash, is it not?

To emphasize the theme of this article, besides supply and demand, a primary factor influencing the price of real estate is the supply of money available to finance property, which economists and other experts completely ignore. What happens when, NOT IF, the Federal Reserve ceases to pump money into Fannie Mae. Financing will come to an abrupt slow down at best, and complete halt at worse? It will make no difference if a person is employed, if there is no financing available for him/her to purchase a home. Likewise itt makes no difference what the supply of houses if there is no money for financing. When there is no money to finance the purchase of homes, the bubble will burst. Housing inventory will start to increase again because lack of financing prevents homes from selling

With the increase of supply of houses, the laws of supply and demand will go into effect. When financing is not available which prevents the sale of homes, what happens to the price of real estate? Prices will go down, right? Since there is no money to finance mortgages, will the price of real estate take another nose dive as it did in 2006 and history repeat itself?

Another common misconception is assuming banks will not quit lending because this is how they make their money. For those who subscribe to this premise, I will only refer you to the last several years where banks were not lending except with at least 20% down, 800 credit scores, and a verifiable W2. Under this scenario, not many qualified for homes, especially lower to middle lower price range, hence we got the headlines, "Banks Are Not Lending". Add to this the probability interest rates will rise, which will also put downward pressure on real estate prices. For example, a $100K loan at 4% for 30 years will have a payment of $447. If interest rates rise to only 6%, the same $447 monthly payment will only support a $79,629 loan. This means either the borrower who only can afford a $447 payment will have to come up with an extra $20,371 in down, or sellers will have to come down $20,371 on their price. Neither are desirable.

Recently FHA was practically keeping the market alive for middle and lower priced homes. However, because of FHA slack lending practices, FHA is in trouble. To add fuel to the fire, FHA is increasing their insurance premiums, which is pricing FHA out of the market for many buyers. Not only that but a new bill entitled, get this, "The FHA Solvency Act of 2013", which is designed to make FHA solvent again. Do not look for FHA for your end financing. It will not be affordable.

SUMMARY: The increase in real estate sales in Dallas, as well as nationally, is a result of the Federal Reserve pumping $45 BILLION a month into Fannie Mae to purchase mortgages in the secondary market. Banks are becoming mortgage brokers not lenders. Why? Because banks will merely take the loan application, conform to Fannie Mae standards, and then immediately sell the note to Fannie Mae and collect a fee in the form of points. This is not a real estate recovery, but rather another real estate bubble in formation.

When the Federal Reserve ceases to furnish Fannie Mae with money to purchase mortgages, financing will again dry up and the bubble will burst as it did in 2006. Right now you might consider this phenomenon a "wave" not a recovery. If you are wholsaling, or perhaps rehabbing and flipping, RIDE THIS WAVE while it lasts. Just realize this is not a recovery in the housing market, because the "money" the Federal Reserve utilizes to fund Fannie Mae is not real; and will not last.

Remember: The price of real estate is directly proportional to the financing available.

If you have a question or comment, please CONTACT ME. It is from your feedback that I get many of my topics.

Remember, if you know of someone who has a note to sell, I will pay a referral fee, or split my profits with you

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

Copyright © H&P Capital Investments LLC
All rights reserved