Written by Jeffrey R. Armstrong – President/Owner of Armstrong Capital
Your favorite Master Note Buyer – Straightforward, Honest, Fair…
With so many innovative and ingenious ways of creating wealth, making money and accumulating riches we can be distracted and forget to start planning for our retirement. In the private mortgage note niche a note broker or cash flow consultant can make a very good income just brokering or flipping the notes as a business. Just the monthly duties of marketing, negotiating and processing can be a distraction and the goal of passive and residual income gets put on the back burner. So this month I would like to briefly show you one way that you can start to build towards your retirement through private mortgage notes by purchasing notes to keep for yourself. The best way to demonstrate this retirement building method would be through an example.
Buying Real Estate Secured Notes
Here is an example of a note you might buy for yourself. This is ¾ of an acre of improved land in Hesperia, California. It sold for $30,000 with a $6,000 down payment and the seller carried back the note for $24,000 at 8% interest amortized for 10 years with a monthly payment of $291.19. When the note holder contacted me she had already received 17 payments leaving 103 payments remaining and a current principal balance of $21,646.83.
The person that had purchased the property was a builder and had already started to build a home on the property. By the time I looked at the property he had already laid the foundation and they were already framing the new house. The buyers’ credit was excellent (above a 750 credit score), the title was clean, clear and up to date with no issues and when I had the appraisal done the property appraised for much more than the sales price of the property because of the work the buyer had already done.
I had negotiating an accepted purchase price of the note with the seller of $15,000. That left me with a couple of options on this note. The first option is just business, I could sell it to one of my investors/funding sources for $17,401 and make $2,401 right now. My other option would be to buy it for myself. At a purchase price of $15,000 my yield (or return on investment) would be 18.46%. I would then collect 103 payments of $291.19 and collect $29,992.18 if the note went the full term. So, I took the risk and purchased the note.
After I purchased the note the payments came in perfectly for 9 months straight. At that point I received a phone call from a title company asking me for the payoff amount on the loan to the present date, it calculated out to be $20,289.16. A couple of weeks later the loan was paid off to me in full. Was I upset that I only received 9 payments and that the note did not go the full term? Maybe a little but look at it this way: I paid $15,000 for the note. I received 9 payments of $291.19 for a total of $2,620.68. I received a payoff check in the amount of $20,289.16 for a total of $22,909.84 that I received from my $15,000 investment. That gave me a profit of $7,909.84 versus the $2,401 that I could have made if I just brokered the note. If I calculate my yield on my initial investment it comes out to be 61.48% for the 9 months that I carried the note.
Instead of using the money for expenses now I choose to let it build up and buy more notes with it when the occasion presents itself. The system I have built for myself is when the opportunity comes up for me to purchase a note for myself I use a separate account I set up just for the purpose of purchasing notes. I buy the note then all of the payments that come in on the note go into that same account. So over the years the account has grown quite substantially.
Let me throw something else out for you to think about as well. What if it was possible to purchase real estate secured notes in your own Self-Directed IRA? How about your own Self-Directed Roth IRA? Well, it is possible and you can do it. On the example above all of the payments and the payoff amount would go into your Self-Directed IRA for you to use another time to buy another note and so on. Can you imagine the potential monetary growth that you achieve for your retirement?
You can keep a real estate secured note for future passive income or put it into your Self-Directed IRA you will have created one additional way to build toward your retirement through private mortgage notes. I am not sure that an average person these days can count on Social Security to sustain any kind of lifestyle when they reach retirement. Imagine owning 5, 10, 15 or more notes that you are receiving payments from on a monthly basis. Wouldn’t that be a wonderful addition to your monthly retirement income in the future?
It doesn’t matter whether you are a one man operation or a company with many employees, the importance of planning for your own retirement has never been more important. No one else is concerned about your future or your retirement. You alone have to take steps towards securing your financial future. If you have been a note broker for several years and have never purchased your own notes, it might be time for you to look at starting to try to buy a few for yourself. As you gain more experience then you might start to think about putting some in your own Self-Directed IRA and so on. Your actions now will forecast your financial future as retirement approaches. You are the only one who truly knows what your current position is and whether or not you can take the next step of buying notes for yourself. Remember, success demands action! Keep on marketing, it’s going to work! TWITA! (That’s What I’m Talking About!)