A real estate investor can make mortgage buyers a profitable source of income by using his knowledge of real estate paper investment. The use of private financing, along with the knowledge of seller financing, can make such deals a win-win situation for the buyer, the seller, and the investor. Here are a few techniques that work very well in real estate paper investment.


1. Prioritize the commission notes. A real estate agent should analyze each and every deal in isolation. He must understand the individual needs and goals of that particular deal. An able real estate negotiator can bridge the communication gap between the buyer and the seller to bring a deal to closure. Very often, the cash to be paid to the seller by the buyer is the biggest stumbling block. In this situation, the real estate agent could take his commission on paper instead of cash and close the deal. Real estate paper that is secured by real estate with a safe loan to value ratio (LTV) of less than 80% is readily saleable. The real estate paper should be structured in such a way that it could be sold immediately with little discount. The commission taken on paper will close the deal instead of losing it; it is just that you have a promissory note instead of jingling cash by way of commission from the deal.

2. The seller requests to pay the deal commission in a paper form. Structure the agreement to keep your note safe and saleable; since the note is of a small amount, it will be paid off soon. Insist on a trust deed note to secure deal commission, and write the agents' commission in second position and the private seller-financing note in third position. 

A hypothetical example is:

• Sale price $20,000
• Existing first loan (assumed) $12,000
• Down payment of buyer $2,000
• Second trust deed (broker¡¯s commission) $2,000
• Third trust deed (seller-financing) $4,000

This way, the commission gets paid up before the seller finances are cleared.

3. Raise the balance and lower the rate. A seller hung up on price can be brought around to be flexible about the terms to get over any disagreement about the deal. Negotiate the advantage of understanding the correlation between the interest rate and the price. A small change in the interest rate on the same amount in the end will remain the same but will also give an impression of big loan to the seller. A loan of $15,000 at 13% interest rate for 18 months will work out to $166 per month; $20,622 at 9% interest rate for 18 months too will work out to $166 per month. But a seller feels he is getting $20,622 rather than $15,000, making him pleased about the closure of the deal. A sensible real estate paper note thus makes a successful real estate deal secure on paper.

4. Graduated balloon payment technique. A buyer can amortize a real estate paper note with a few years of balloon payment. The buyer gradually increases the loan payment amount at the same rate of interest to quickly get over the loan. If the payments become a burden, he can refinance at any time. This way, even the seller¡¯s risk is covered, and he recovers his finances quickly without risking the return of the property. If the buyer is short of money, he can be given an extension on the same rate of interest to raise the funds to clear the outstanding principle balance. The real estate paper is thus used to improve the agent¡¯s profits to available financing. 

5. Discounted price in exchange of cash payment. Many times, the seller is willing to discount his property in exchange for cash from the buyer. The buyer is short of cash but is willing to pay a good price to attain that property on a lower down payment. A deal can be put together on real estate paper. The seller will discount but will hold the right to take back his equity on paper if the buyer is unable to pay. The way to put this deal together is to take the seller's discount and use it to generate the cash. Instead of creating a second trust deed note of one single amount, create a second and a third trust deed note of smaller amounts. Structure the sale trust deed note saleable in market. Sell the second trust deed note in the market at a discount to raise the cash. Give the third trust deed note to the seller to meet his terms of cash. This way, both the buyer and the seller get money on their terms, to meet their needs, with the help of real estate paper. 

A real estate paper investment is a very valuable market tool for making clean profits in real estate investments to the satisfaction of all the involved parties.

 

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