This article discusses why I love paper. Paper means holding notes.
Holding notes means holding the mortgage… where you become the bank!
Today I got the question from a friend “Why do you like Holding Notes so much?”
My answer: Today I picked up checks out of my mailbox.
His response: Yeah… you do with your rentals also…
My Response: One of the properties needed to have part of the roof replaced… guess who didn’t pay for it?
His Response: Touche
What he was really asking was this. Todd, Why do you want to become the bank?
My answer is INTEREST! I want to earn interest on all the money that I can. There is a number of ways to own Notes (Paper). You can buy notes from other investors or investing institutions. You can buy them at a discount depending on different situations and motivations from the seller. You can buy non-performing notes (mortgagor/homeowner isn’t making the monthly payments) at extreme discounts and purchase properties with equity for pennies on the dollar. You can sell property that you own on terms and hold notes. There are all kinds of different ways to hold paper.
One of the biggest reasons that I love holding paper is because it is more important to be creative and more rewarding to be creative than the typical real estate transaction. You can eliminate the middleman and make sure that you are getting wealthy as oppose to others… especially the banks, they are rich enough… it’s your turn!
To give an example. I recently bought a property with quite a bit of deferred maintenance for only $2500. I put roughly $7500 into the property to bring my total investment out of pocket to $10,000. I sold this now rehabbed house to someone for $10,000 down which cashed me completely out of my investment and the note on the property is for an additional $28,500 BEFORE interest. After the specific terms and interest in the paper, the note is worth roughly $35,000 and $600/ Month into my pocket with no extra work or responsibility.
That… is why I love becoming the bank.
Many think to own a note or become the bank you have to lend your own money, clearly, I took nothing out of pocket to actually “lend” in this situation all while collecting interest on money I never originally had… NOW THAT’S BECOMING A BANK…
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