Today’s REI Classroom Lesson

Jack Shea shares with us how to buy a note and then to sell a partial payment to a non-active investor and provide monthly returns to the investor, while still making a good profit.

REI Classroom Summary

Jack Shea explains how you can still pay your passive investor a decent percentage of returns while still having a high percentage of returns for yourself.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the Flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Jack: Hi, my name is Jack Shea and I’m happy to be here on the Flipnerd educational platform and I have the topic that I’d like to share with you today. It’s something that I’ve done for a long time and something that you could do to increase your yields. I buy a note, if you’re a note buyer, I buy a note and I buy all my notes in personal property trust. So it’s a title in the personal property trust . . .

Mike: This show was sponsored by passiverental.com.

Jack: . . . and I can share pieces and parts of payments and that without going to the courthouse and retitling the note. So say I buy a $65,000 note that’s 65% loan to value. And that’s okay with me. I do my homework and I figure it’s safe enough. And after I take control of that and then I season it for a bit, I get some payments, make sure it’s on track. Then I’ll offer a front-end payment, so part of the payments, to another investor.

These are typically non-active investors that have idle, lazy money in IRA accounts that is sitting at their custodian or at some mutual fund and not earning much money, if any. So I offer to sell the front part of the notes, say, for the front part of the payments. I’ll sell $45,000 out of the $65,000 to another investor and he gets paid 7%. While that’s a less than 50% loan to value on that property.

So it’s a safe bet, I have a junior secondary interest, I service the note, I get the payments, I keep the late letters, I collect, and when I get the payment, then I send him his 7% on the $45,000. And if that does get off the track, I have a right in our agreement to buy him out and take over and take care of the property or foreclose on the property. I do not want that person to foreclose me out and get a $100,000 property for $45,000.

And they don’t want to do that either. They’re not that kind of players. They just want peace and quiet and they want to get that check in the mail. So I will take them out, I’ll pay them off, I will, say, let the interest accrue until I foreclose on the property. So they’re safe and secure and they’re happy with that yield because it’s 14 times what they’re getting in the bank, or if it’s at a custodian, they make zero on their money.

So how that works for me is . . . So I have $20,000 left in the deal and I make 12% on that. And on the $45,000 that I sell to them they make 7% and I make the extra 5%. So I make and additional extra 5% on top of that. So my yield, maybe 17, 18, how ever you want to do it, and that’s okay. I tell them what I’m doing, they’re happy enough with that. If they wanted to go out and shop notes and find these and analyze them and check all the background.

So everybody is tuned in and everybody is served. So I have people that are ready and they say, “When’s the next one coming?” So it’s a technique that you can do and it’s off the public record. It’s in a personal property trust. A lot of this is my IRA money. The plan for your IRA should be to turbocharge your IRA and get these higher than average yields because you’re a player. And it’s going to be a bleak retirement on social security and $1,300. So these are things you can do and they work for me and you can try it too. Thanks.

Mike: passiverental.com is your source for turnkey done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit passiverental.com to learn how to purchase cash flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting passiverental.com.

Please note, the views and the opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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Jack Shea
I have been investing in real estate, notes and personal property for over 25 years. I use trusts in every deal: options in many and IRAs and 1031 exchanges whenever possible.