Now that the sub prime market is vanishing, 'gurus' are giving you misleading information that owner financing solves all your problems. For example, in today's mail, I got two advertisements for seminars touting that you can get a higher price for your property using owner financing. THIS IS A MYTH.

I was reading with amazement how these "gurus" were telling you that if you had a house worth $150,000 that is not selling, you could use owner financing to get your price, and sell this property immediately. All because the buyers do not have to go through a bank to qualify.

While it is true you can command a "higher selling price" using owner financing, this does not translate into more money, especially if seconds are brought into the picture. These gurus do a great sleight of hand by equating a "higher price" with more money. THEY ARE NOT THE SAME.

Can we agree that buyers with 10% or more down, with good credit, can take out a conventional loan, with no need for owner financing. What "more buyers" really means is more sub prime borrowers. Sub prime borrowers do not make note buyers feel warm and fuzzy.

For example, take a scenario of a $150,000 house where you got a $3,000 down payment and took back a first lien note (the same concept applies to a wrap) for $147,000 @ 9%.for 360 months. You had a hoard of buyers wanting the property. It appears that you got "full price" for your house, but did you get more money? How much cash would you really receive if you sold the note.

Now let's convert this note to cash. The Note Buyer is looking at little equity, at best, and at worst, little equity with a low credit score. Being conservative, let's say a note buyer would pay 85% of the unpaid balance of this note, which is $124,950 plus the $3,000 down. This is a grand total of $127,950(not counting closing costs). You could have discounted the house to $135,000 and received "more money", but at a lower price. Are you beginning to grasp and see that although you got a "higher price", this higher price did NOT translate into more money? Why? Because the note was discounted due to low equity and/or low credit score.

Thus a "higher price" is not the same as getting more money, is it? Now magnify this concept where the gurus are telling you to take back a second, which has no value to a Note Buyer, not to mention the risk of losing all your second lien note's value should the first go into default. Are you really receiving a "higher price?"

In the 70s, the same mistake was being made. Many believed the price of real estate was rising, when in fact the high interest rates, along with the deep discount for selling notes gave a different picture of real estate prices.

Does this mean there are no good reasons to owner finance? Heavens no! Does this mean you should never take back a second? Heavens no! There are good reasons to owner finance and to take back seconds, but "getting a higher price" is NOT one of them. Why, because a "higher price" is not the same as getting more money.

If you have a topic you would like Tom to discuss, Contact me. It is from your comments I get many of my topics.

Remember, if you know of someone who has a note to sell, I do pay referral fees and you receive the benefits.

To forward this email to friends or business associates who have an interest in time value of money, click the "Forward this newsletter" on the front page. 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.

A commentator on one of the news talk shows made the comment that American factory workers do not want to hear about the teachings of economists like Hayek or Friedman, but rather only wanted their jobs back. My thoughts immediately went to W. Edwards Deming's quote above, along with one of my favorite parables, "Who Moved My Cheese" by Spencer Johnson.

If you have not read "Who Moved My Cheese", I strongly suggest you do so. It is a short, easy reading book that describes how two mice named Sniff and Scurry, and two miniature humans named Hem and Haw lived in a maze, where in one particular spot there would always be cheese to eat. One day they all arrived and found the cheese gone. Sniff and Scurry immediately started going through the maze and found other cheese. Hem and Haw, on the other hand, were very angry the cheese had been moved and started placing blame and exclaiming; WHO MOVED MY CHEESE. It's NOT FAIR. I AM ENTITLED TO MY CHEESE. Of course these outcries do not bring back the cheese, and both Hem and Haw go hungry.

Haw begins to realize the cheese is not coming back and tries to persuade Hem to leave in search of other cheese, but Hem would have no part of it. Rather than die, Haw strikes out in search of other cheese, but not before carving into the wall of the of empty cheese room for Haw to see: "If You Do Not Change, You Will Become Extinct". Haw meanders through the maze and even though he encounters obstacles, he finally finds his old friends Sniff and Scurry, along with new cheese to eat. What happens to Hem? I will let you read to find out for yourself.

The theme of my article is to point out how this election, along with the pundit's remark that factory workers only wanted their jobs back closely coincides with the lesson of "Who Moved My Cheese". While I have pointed out in previous articles how an import tax will actually cost jobs, there is really no imbalance of trade, as well as government regulations actually hinders and prevents jobs, I do not want to rehash these economic axioms in this article, but rather to apply many of the factory workers' plea to "bring back our jobs". Of course the politicians will not tell these workers the truth. THESE JOBS ARE NOT COMING BACK. THE CHEESE HAS BEEN MOVED.

We are no longer living in a post World War II economy where America had virtually the only economy intact, as the entire world was either rebuilding from the war or had no production capability. We now live in a global economy where factories in America are in fierce competition with factories in developing economies. We now see quality products with made in India, China, Egypt, etc. THE CHEESE HAS MOVED. In order to survive, like Sniff and Scurry, American workers need to move through the maze of life in search for other cheese. Politicians cannot bring back the cheese, much less produce new cheese.

Threats of taxing imports, which is a tax on consumers, might protect to an extent certain manufacturing jobs, but it will be at the expense of other jobs and businesses, as well as not being beneficial to the consumer. As pointed out in earlier issues, if a shirt made in America costs $50, and a like quality shirt made in India can be purchased for $35, by purchasing the $35 shirt, you would have a shirt PLUS $15 extra to spend. If an import tax were placed on the $35, which raised the price to $50, you would have only the shirt, but not the extra $15 to spend on say a lunch at a restaurant.

So the shirt manufacturer was protected, but it was at the expense of the owners and workers at the restaurant, as well as you, the consumer who has only a shirt while deprived of a $15 lunch.

Hoover tried an import tax which resulted in the Depression going into a downward spiral, not to mention a trade war which followed. Remember, we pay for our exports with imports.

Along the same lines, America's factories are now dependent on computers, automation and innovation NOT on manual labor. However, our education system has not moved with the cheese to train the youth they can no longer depend on manual labor for their survival. The CHEESE HAS MOVED.

Raising the minimum wage above the market price for unskilled labor will be on the same thinking as Hem; "It is not fair. Bring my cheese back. I am entitled". But the cheese is not coming back. It has moved and will continue to move.

Like the factory workers who look for a savior politician to bring back their jobs or cheese, we in the note and real estate business need to realize the cheese has been moved and is not coming back. Learning new ideas and different ways of accumulating wealth is more important now than I have ever seen it.

As we move through the maze of life, like Sniff and Scurry, we must be ever vigilant that the cheese is changing. And like Haw, who in the end became very wise, indeed, as we go through the maze of life, we must learn "What Would You Do If You Were Not Afraid".

Now that you realize politicians cannot bring back the cheese or jobs, no matter who is elected, take advice from Haw: Adapt to Change Quickly: The Quicker You Let Go of Old Cheese, The Sooner You Can Enjoy New Cheese.

With this in mind, I recommend investing in free and clear properties, where the seller provides the financing to make an exit strategy easier and even profitable. Also, if you plan to use conventional financing, do so now while interest rates are artificially low. Likewise, if you are contemplating selling your note, now is the time while interest rates are low. Remember, the higher the interest rates, the lower the price of notes. More importantly, act out of knowledge, not out of fear and be ready to MOVE WITH THE CHEESE.

Tom Teaches: In conjunction with National Association of Real Estate investors, Tom will be teaching a workshop on TRICKS OF THE TRADE AND TAKING THE MYSTERY OUT OF PARTIALS. Tentatively it will be held June 25th. We are having issues finding a suitable, well priced hotel to hold the presentation in June because of weddings and graduation events. I will be sending out another newsletter giving all the details later. Keep this date on your calendar.
TOM WAS VOTED THE NUMBER ONE RANKING SPEAKER at the Paper Source Note Symposium held in Las Vegas this year. You will get the same information packed workshop that was enjoyed by the professionals at Paper Source.

If you have questions or a topic you would like me to discuss at the workshop. CONTACT ME Tom Henderson /a.k.a. THE NOTE PROFESSOR. It is from your comments that I receive many of my topics.

Copyright © H&P Capital Investments LLC
All rights reserved

Click here to subscribe and/or view the archives of past information packed issues 2003 to September 2009. (Current archives October 2009 though April 2016 click here)


Forward this newsletter to a friend that would have an interest in Owner Financing and buying and/or selling Real Estate NOTES.