making money from the meltdown!

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making money fromthe meltdown!

How to Profit from the Nation’s Growing Real Estate Crisis

By W. Eddie Speed

What images come to mind when you see the term, “seller financing”? Perhaps you think about desperate homeown-

ers, dilapidated properties, and destitute buyers. Or that miniscule segment of real estate sales involving fast cash and foreclosures. Maybe it means little to you, or nothing at all. Maybe it’s time to think again.

To paraphrase the old Oldsmobile commercial, this is not your fa-ther’s seller financing. Seller financing has risen from the ashes of the recent real estate meltdown to offer tremendous opportunities for the entrepreneur and real estate professional alike. It now pres-ents multifaceted business opportunities and very lucrative careers for people from a diverse variety of backgrounds. Here’s how seller financing has evolved into an outstanding real estate-related enter-prise, one that could be ideal for you:

As you’re well aware, the banking and mortgage industries are un-dergoing major turmoil. Hundreds of thousands of Americans are, in fact, painfully aware of the recent developments in the housing market and the lack of available funds to alleviate the crisis.

Too many financial institutions have been lending money in a blind and reckless way for far too many years. As a result of subprime lending and other risky practices, foreclosures have reached record highs. Meanwhile, the number of conventional lending sources has plummeted, as has the amount of money available for loans. Thir-teen banks have folded during the first few weeks of 2009, adding to

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the 25 failures just last year. These factors are having a devastating impact on real estate sales.

Contributing to the problem is the soaring unemployment rate. The number of jobless Americans is mounting daily, as multinational corporations and small businesses alike struggle to remain solvent. The unemployment rate now stands at 9.7%, and could approach a double-digit milestone by the end of this year. (In fact, the rate increased by a full percentage point while I was writing this chapter!) Mounting unemployment will exacerbate the real estate crisis, causing additional foreclosures, fewer sales, and a further slowdown in new-home construction—which is now at the lowest level on record. Meanwhile, Americans are watching their overall wealth evaporate as their home values plummet, retirement funds shrink, and other investments disappear.

The pool of real estate buyers who still qualify for convention-al loans is rapidly shrinking, as well. Meanwhile, properties are flooding the market at drastically reduced prices. In fact, housing prices have dropped by 28% since 2006—and they’re continuing to decline. Putting this into perspective, ABC News™ reports that you can now purchase a home in Jackson, Tennessee, for about the same price as a 2004 Ford Expedition. And in Phoenix, Arizona, the list price on a handyman special could pay for a new Honda Civic!

Problem is, fewer Americans can afford either the house or the car.

The Silver Lining

Despite the weak—and worsening—real estate market, there’s a silver lining to the crisis. That’s right, it’s seller financing.

Seller financing is coming to the rescue of anxious property sell-ers and eager buyers alike, serving those who aren’t able to meet

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their real estate needs through traditional financing methods. It’s filling the void created by the mortgage meltdown by offering an alternative to hard-to-come-by conventional loans. In fact, seller financing is fast emerging as the solution to the collapse of lend-ing institutions and the shrinking supply of funds available for mortgages.

“Seller financing is fast emerging as the solution

to the collapse of lending institutions and

the shrinking supply of funds available for

mortgages.”

It’s the viable solution for countless would-be buyers who no longer qualify for traditional mortgages. It’s also the solution for homeowners who are desperate to sell their properties, but are unable to find prospects who qualify for conventional loans.

And for you, it could very well be the solution to your challenge of finding a profitable future in a real estate-related industry.

What is Seller Financing?

Seller financing is best described by comparing it to conventional lending. The traditional method for buying property involves three parties: the seller, the buyer, and a bank or other lending institution.

Once the seller and buyer agree upon a purchase price, the buyer applies for a standard mortgage loan for the sales price, minus what-ever down payment is to be made. Upon its approval, the lending in-stitution advances the full amount of the loan to the buyer at closing, enabling him or her to transfer it to the seller. The buyer establishes a lengthy relationship with the lending institution, paying off the loan plus interest over time. Meanwhile, the seller receives the full

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price for the property in cash, and walks away at the closing without any further involvement with the buyer or the property.As the name implies, seller financing means that the seller finances the buyer’s purchase of the property. This arrangement is also known as “owner financing” or “owner carry-back.”

This alternative financing mechanism eliminates the lending institu-tion altogether. In fact, the seller assumes the role of the bank. He or she collects monthly payments from the buyer over time, rather than receive a lump-sum payment for the full purchase price at the time of the sale. In addition to a down payment, the seller receives many years of steady, reliable income that includes a generous amount of interest.

The specific conditions of the seller-finance arrangement are negoti-ated between the seller and the buyer. This offers much more flex-ibility than a traditional mortgage, and allows both parties to address their particular needs. The terms of the sale include the same con-tingencies as a conventional loan, including the repayment schedule and a maturity date, as well as such contingencies as late fees, early prepayment, and the seller’s rights in the event of a default.

The agreement is then documented in a legally binding debt instrument known as a seller-financed note. This is, essentially, a promissory note. The buyer makes an unconditional promise to pay the property seller (who then becomes the “note holder”) a specified amount of money on a predetermined schedule, typically monthly. The regular payments include a portion of funds that pay down the principal plus interest, at whatever rate was established in the contract.

When the terms of the loan have been satisfied, the buyer owns the property outright. The two parties then sever their business relationship.

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The cash value of the note itself is determined by the buyer’s credit, property type, buyer’s down payment, terms of the note (e.g., interest rate, repayment, and maturity date), seasoning (i.e., how many pay-ments have been made), and the quality of the paperwork itself. Thus, a note on the same property at the same purchase price can be of greater or lesser value, in large part depending on how it’s structured.

Why Seller Finance?

Simply put, seller financing is an alternative to traditional lending. With few exceptions, it’s the only option for the buyer who is unable to quali-fy for a conventional loan. This is significant today because the number of buyers who can no longer acquire mortgages is soaring.

Changes in personal circumstances, such as reduced family income, mounting debt, or investment losses, are lowering the credit scores of many Americans. In the aftermath of the subprime fiasco, banks and mortgage companies are tightening their lending criteria dramatically, as well.

As a result, at least 50%—and some experts say 80%—of the people who qualified for home mortgages just two years ago no longer do. Worse, this group will continue to increase in size. Using the more conservative figure, this means that the number of people who can purchase a home through conventional means has been cut in half in just two years!

Among the ineligible candi-dates are countless Americans who are truly deserving of mortgage loans. These are the people who can repay their obligations—and they have the integrity to do

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so. They’re honest, responsible and accountable. Essentially, they’re the low-risk candidates who are now denied financing because of tighter underwriting criteria and the reduced availability of funds. Chances are, you know some folks who are in this situation right now.

Homeowners who are eager to sell are also paying the price for these recent developments. Their properties are remaining on the market for extended periods of time—some for a year or even lon-ger—while their property values continue to erode. In 2008, hous-ing prices fell by 18% over the previous year, adding to earlier, sig-nificant declines.

Seller financing is thus becoming an increasingly attractive solution for property sellers—and it’s a godsend for many buyers. By offer-ing to finance the sale, owners attract buyers who can’t purchase the property through conventional means. They can apply less stringent qualification requirements and offer more lenient terms than the lo-cal bank or mortgage company. For anyone who’s selling real es-tate, seller financing creates a much larger pool of potential buyers.

“Seller financing is becoming an increasingly

attractive solution for property sellers—and

it’s a godsend for many buyers.”

With more prospective buyers and less competition from other sellers, the owner who offers seller financing can often command a better price for the property and at a higher interest rate than he or she can achieve through other types of investments.

In addition, both the buyer and the seller realize considerable savings in closing costs. There is no private mortgage insurance, nor are there other lender “junk fees.” There may also be a tax

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advantage, since the seller can spread the tax consequences of the sale over the course of years, rather than realize a single, sizable gain. Another advantage is that the property can be sold “as is,” sparing the owner whatever repair costs might be necessary if the sale involved conventional financing.

As for the closing process, seller-financed transactions can close up to 70% faster than conventional sales.

Prime Properties for Seller Financing

1. Free and clear

Sellers who own their properties outright can readily finance the sale without risk to their own credit. Since they don’t have to rely on the buyers’ monthly payments in order to pay off their own mortgages, they don’t subject themselves to foreclosure. Roughly one third of all homes in this country are owned free and clear. Thus, huge numbers of properties can be seller financed without risking this consequence.

2. On the market

As the housing market continues its downward spiral, homes are remaining on the market for months, even years. Meanwhile, owners are watching their properties steadily decrease in value, while they continue to bear the cost of maintaining them. These owners are becoming increasingly motivated to sell by any means available to them.

3. Owned by the elderly

Many aging homeowners become incapacitated and need to move into their relatives’ homes or into assisted-living facilities. Their homes, which are usually owned

Continued...

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Most importantly, the owner has a better chance of selling his or her property at its full retail value. This means a higher return on the original investment plus interest, for a substantial and steady income stream.

Here’s a typical example of a seller-financed transaction. It involved a house that recently sold at market value. The buyer put down 10% cash on the $200,000 purchase, and is paying 8% interest on the

outright, are exceptional candidates for seller financing. The senior seller can earn income from the transaction, which can be applied toward new living expenses, medical bills, or other needs. They also have the option of selling their note or the property itself to a seller-finance investor, and can receive a large cash payment instead. The proceeds can be used to cover their various expenses and/or be used to create dividend income from investments.

4. Distressed

As described earlier, low-cost and rundown properties are especially suitable for seller financing. Conventional lenders are even less likely to finance these sales today, given the negligible value of these assets and the riskier nature of the buyers.

5. Vacant

Three out of every 100 single-family houses in the U.S. is vacant—and the number is climbing. Some are on the market; others have been foreclosed; still others have been abandoned. Vacant homes are much more vulnerable to acts of vandalism, theft, and even arson. These very real threats motivate owners to sell—and they make seller financing all the more attractive.

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$180,000 balance due over the next 25 years. He was willing to pay the retail price plus interest that’s higher than prevailing rates. Why? Because seller financing allowed him to purchase the home he wanted at a price he could afford. He would not have qualified for a regular mortgage, despite a good job and minimum debt, be-cause of the strict qualifica-tion standards demanded by the lending industry today. In-stead of receiving a cash pay-ment for the depreciated value of his home, the owner sold his house at a great price, collected a generous down payment, and established steady monthly income over the next two-and-a-half decades.

These days, breaking even in real estate is considered a success. But with seller financing, property owners can realize a substantial gain.

Given the sluggish housing market and economic declines in gen-eral, it’s no wonder that seller financing is quickly becoming a main-stream mechanism for the purchase of real estate. It’s closing deals that wouldn’t be possible through conventional means.

“Seller financing is closing deals that

wouldn’t be possible through conventional

means.”

Seller Financing’s First Foray into the Big League

Whenever banks and mortgage companies tighten their lending prac-tices, seller financing gains popularity. Exorbitant interest rates can have the same effect. During the 1980s, for example, interest rates for

Sale Price: $200,000Down Payment: $20,000

Interest Rate: 8%

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conventional mortgages soared past 18%. This weakened the housing market by seriously reducing the purchasing power of qualified buyers. As a result, seller financing emerged as a specialty niche among real estate transactions. This alternative financing method allowed sellers to offer much lower interest than the standard market rates, making their properties more competitive than those that were only available through traditional financing.

By purchasing directly from the sellers, buyers could avoid the inflated interest rates and negotiate lower monthly payments than they could arrange through traditional lenders. Lower interest rates meant more money could go toward the principal. Because they could afford better homes through seller financing, they essentially got more property bang for their housing buck.

Meanwhile, sellers benefited by attracting buyers who otherwise couldn’t afford their properties. Thus, they created a larger pool of prospects. By financing the sale themselves, owners could negoti-ate terms that would yield their asking price plus interest over time. They sold their properties faster than they could through conven-tional means and at top dollar, too. This mutually beneficial arrange-ment factored into many real estate transactions at the time.

As interest rates dropped, however, the need for seller financing also declined. Buyers overwhelmingly turned toward conventional lending, which is always preferable to seller financing—provided it’s available and affordable.

Seller Financing Retains a Foothold

When interest rates returned to a reasonable rate, seller financing was limited to a small sector of the real estate market, specifically, property that isn’t normally listed and sold through a realtor. This included various types of land, such as unimproved land, recreation-

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al parcels, mobile home lots, and farmland. The other two types of property that were seller financed were “rehabbed” houses and mo-bile homes with land. Conventional lending has always been diffi-cult to obtain for these sales, due to the nature of the property itself and/or the buyer who might be interested in it.

The owners of these “affordable” properties often financed the sale themselves, despite the poor credit of the buyer and with a small down payment. For that market in particular, seller-finance activ-ity was vigorous—and it continues to this day. Between 2000 and 2006, some 150,000 seller-finance transactions have occurred annu-ally, mostly involving these types of real estate.

For those of us in the note business over the past two-to-three de-cades, seller financing has remained a lucrative venture, despite the ready availability of conventional lending in more recent years. In 2006 alone, I purchased 2,200 notes from owners who had financed the sale of their properties for their buyers. Many of the notes were loans I could sell to aggressive funding sources that accepted the risk. Others were bought that involved solid payors but on uncon-ventional collateral, i.e., properties types not common to subprime lenders.

Seller Financing Goes Mainstream

Recent upheavals in the housing market in particular and the econ-omy in general are creating an extraordinary demand, once again, for this alternative financing method for real estate. Increasingly, traditional real estate is joining the mix.

Consider this: two years ago, about one in every 400 real estate trans-actions used seller financing. Today, it accounts for one in every 50 transactions. That’s an 800% increase in just two short years!

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What’s more, some real estate experts predict that seller financing will soon become the sales method of choice for one in every ten real estate transactions. Not since the 1980s, have I seen such an extraordinary increase in seller financing. Literally thousands of properties are now being seller financed every day. Given current economic developments and fore-casts, there’s every reason to believe that this trend will continue.

“Two years ago, 1 in every 400 real estate

transactions used seller financing. Today, it’s

1 in every 50.”

Opportunities in Seller Financing

Understanding how seller financing works is important for anyone who enters the business. But you’re no doubt wondering how it can work for you. There are four distinct ways in which the real estate professional or serious entrepreneur can turn this silver lining into silver and gold: Brokering notes, investing in notes, manufacturing notes, and/or extending his/her expertise beyond the note business.

To understand these various profit centers, it’s useful to look at the origins of these activities and how the industry has evolved to where it is today.

Brokering Notes

When seller financing emerged as a note business in the 1980s, its pri-mary goal was the purchase of notes from individual owners and their simultaneous resale to note investment companies, that is, funding sources. Entrepreneurs would locate seller-financed notes and then negotiate with the note holders to sell them at a discounted price.

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For a variety of reasons, note holders agreed to relinquish their notes along with the steady, long-term income they were deriving from them. In return, they received an immediate, lump-sum payment in cash. Some note holders needed the money for unexpected expenses or to pay down their debt, and some found that the monthly payments were too small to put to any real use. Others wanted to rid themselves of the monthly management hassles and paperwork requirements of carrying a loan; still others wanted to invest in more lucrative opportunities. A few simply wanted to splurge. And some recognized that they wouldn’t live long enough to collect all the payments—and weren’t interested in bequeathing the note to their heirs. These reasons account for most of the individual note sales to this day.

Here’s how a note is bought and sold: The broker contacts the note holder to determine whether he or she might be interested in selling the note. If so, the broker contacts the funding source to determine what price it’s willing to pay for it. The discount price typically ranges between 60% and 80% of the note’s unpaid principal balance. Before presenting the offer to the note holder, the broker subtracts his or her own fee from the total, which can range between 7% and 10% of the sale or even more. The broker contacts the note holder and offers to buy the note at the adjusted price (the discounted price minus the broker’s fee). At closing, the broker receives his or her fee and the balance is paid to the note holder.

Brokering notes is a very low-risk venture because the person who buys and sells notes can earn thousands of dollars from every trans-action without using a dime of his or her own money.

“The note broker can earn thousands of

dollars from every transaction without using

a dime of his or her own money.”

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Marketing and Negotiation

Marketing and negotiation skills are absolutely critical to the note professional’s success.

Done right, marketing allows both the broker and the note investor to find seller-finance notes, particularly the most valuable ones. Their marketing methods may include direct mail, websites, email campaigns, classified advertisements, signage, telephone calls, presentations, and/or other communication devices. With a compelling marketing message and a superior list of note holders, the professional note buyer can identify quality prospects and encourage them to sell their notes.

Likewise, the note manufacturer and investor can identify properties suitable for seller financing, and market to those owners. The seasoned note professional uses proven marketing techniques to offer his or her expertise to others, such as, realtors, property owners, and note investors, so that they can finance the sale of properties themselves. In the increasingly competitive environment of seller financing, the note professional’s success will depend greatly on his or her ability to get the right message to the right people, and compel them to act in the right way. Marketing is at the core of that process.

Negotiation factors greatly in every seller-finance transaction. By applying shrewd negotiation tactics, the note professional can entice the prospect to do business with him or her, often turning the naysayer into a note seller. The negotiation skills of the note buyer or investor will then determine how profitable the transaction will be. A skilled negotiator can establish a lucrative contract, including a heavily discounted purchase price, a generous yield on the investment, substantial commission, and/or any number of other conditions that will result in the ideal transaction.

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Brokering notes remained the central activity of seller-finance busi-nesses for many years. It has numerous advantages, including high income potential, a flexible work schedule, minimal operating ex-penses, and a nationwide territory from which to draw clients. In fact, I have brokered notes in all 50 states from my office in Texas. It’s also fairly easy and quick to enter the note industry as an entre-preneur and begin earning commissions.

Investing in Notes for One’s Own Portfolio

In the early days of seller financing, brokers soon took notice of the investment opportunities in this unique real estate activity. They recognized the long-term value of seller-financed notes in terms of appreciating assets and regular income streams. They began selec-tively buying them for their own portfolios rather than simply nego-tiate deals for others. These note investors assumed the role of the property seller, and began acting as the bank for the buyer. By using other investors’ money, they were able to reap the rewards of these transactions, again, without investing their own money.

As with their note brokering activities, the investors sought quality notes with substantial returns, and then purchased them from the own-ers at a discount. By holding onto the notes themselves rather than sell them to a third party, however, the investors collected significant revenues through monthly payments—steady income that would often span generations. In fact, their annual income from note payments greatly exceeded the commissions they would have earned by selling their notes to others. Savvy note investors would “cherry pick” the best notes for their own portfolios and broker the rest for a nice profit.

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The Profit Potential of a Note

Holding a note to maturity can be exceptionally lucrative. Here’s an example, using a simplified scenario:

Let’s say that a buyer needs to borrow $100,000 for the purchase of a house. If a bank lends him the money at a 6% interest rate for a 30-year term, the buyer will pay $599.55 a month. Over the course of the loan, the bank will collect $215,838, for a 216% profit.

But let’s say that the buyer can’t obtain a conventional loan. To sell the house, the owner agrees to finance the sale but at a higher interest rate, say 10%. That establishes a monthly payment of $877.57. The seller, who now becomes the note holder, won’t receive the total proceeds from the sale for another 30 years.

This is where the note pro comes in. He negotiates with the note holder to sell the note to him at a 25% discount, or $25,000 off the total value of the note. The note holder immediately gets $75,000 in cash from the investor, rather than collect a much larger amount of money that “dribbles in” over the next 30 years.

The note pro himself now receives those monthly payments of $877.57 from the buyer. Because he paid a discounted price for the note and the payments include a higher interest rate, the note pro will collect far more on that loan than the bank would. He’ll receive $315,925 over the course of the loan for his $75,000 investment, which is a $416% profit—nearly twice that of the bank.

This remains an attractive revenue stream for many note professionals. In fact, the nation’s most successful note professionals invest in notes for their own portfolios.

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Note Manufacturing

The glut of unsold properties on the market, the shortage of con-ventional funding sources, and worsening economic conditions are creating a phenomenal upswing in seller financing, the likes of which I’ve never seen. Perhaps the greatest business opportunity from these developments is the manufacturing of notes. Increas-ingly, note manufacturing has evolved into a prominent specialty within the industry.

This activity began in the 1990s, when professional real estate investors purchased distressed or otherwise “affordable” properties, rehabilitated them, and then sold them to other buyers, financing the sales.

For the first time, properties were being purchased before the seller-financed notes were created. It was the buyers of these “rehabs”—that is, the professional real estate investors—who then created the notes for the resale of their properties. Savvy investors purchased properties at bargain prices but with good resale potential. They then offered to seller finance the sales to low-risk buyers. They manufac-tured notes and then held them for their own, long-term income.

In addition, with the help of note specialists, many of these inves-tors bought properties, manufactured notes, and then sold the notes to funding sources. Some professionals did both: They created these transactions for others but retained ownership of a portion of the notes as compensation.

Whether they held the notes for their own portfolios or resold them, real estate investors were the first to manufacture notes as a business model.

A Once-Risky Business

In the early 2000s, the business of manufacturing notes often

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proved costly. Individuals who purchased their homes through seller financing were, as a group, much riskier than they are today. That’s because it was easy, too easy, to obtain a conventional loan instead. Furthermore, it was less expensive.

Subprime lending practices and other acts of gross negligence with-in the industry allowed nearly anyone who could fog a mirror to get a loan. Too often, banks and mortgage companies were overly eager to approve questionable applications. Saving both time and money, they performed only cursory screenings of applicants, failing to verify applicants’ statements or examine other sources of pertinent

The Lowdown on Down Payments

A large down payment from the borrower is always a plus. By contributing a significant amount of money toward the purchase, the buyer has plenty of “skin in the game” from the very beginning of the transaction. This person is less likely to default on the loan. He or she will also feel more “ownership” of the property, and will likely take better care of it.

Even if the buyer abandons the property despite the large down payment, the seller can now use those proceeds to help mitigate any losses, reclaim the property (the collateral), and put it back on the market. The seller might even come out ahead.

On the other hand, the buyer who puts little money down has little to lose by walking away. With minimal investment in the property upfront, he’s also more likely to leave it in a state of disrepair. Meanwhile, the seller has little to show for that failed transaction. Instead, he gets stuck with considerable work required to restore it to a saleable condition. Only then can he put it back on the market and try to recover his losses.

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information. With less stringent requirements, lenders were able to qualify more borrowers and process more loans, often for people who clearly couldn’t repay their debt.

As a result of their predatory lending practices and lax underwriting standards, banks and mortgage companies rejected only the riski-est of all buyers—so those buyers turned to, you guessed it, seller financing. A few successful investors manufactured notes for these “Bad credit—No credit—No problem” types, but they structured their businesses around low-end properties and high-volume sales, with plenty of defaults in mind.

Unfortunately, many property owners entered into seller-finance agreements with that same careless approach. They didn’t pull a credit report, verify income statements, examine the buyer’s em-ployment history, or investigate his or her liabilities. Like the big-gest names in banking and lending, their negligence has resulted in costly defaults and foreclosures.

Seller financing’s reputation as a risky business venture has been well earned. But all that is changing.

Seller Financing: New & Improved—and Mainstream

The recent collapse of many banks and mortgage companies has had a phenomenal effect on lending practices and, conse-quently, on real estate activity. Lending institutions have tight-ened their underwriting criteria drastically, making it far more difficult for borrowers to qualify for loans. Many applicants who would have received conventional

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loans just two or three years ago are now being rejected.

A considerable number of these candidates are “just missed” bor-rowers who fall narrowly outside the newer, stricter lending criteria. These are reliable, low-risk prospects who demonstrate the ability to meet the terms of their loans. And they have every intention to do so. They would have easily qualified for conventional mortgages in the past but no longer measure up on paper. Perhaps a credit problem of long ago or a recent change in employment now raises questions and closes doors.

There’s a good chance that you personally know someone in this situation.

In addition, fewer funds are available for lending, which has created a supply-and-demand problem. Traditional lenders now reserve their limited assets for their most credit-worthy candidates. Increasingly, even the low-risk borrowers are now turning to seller financing.

The impact of these recent developments on the note industry has been dramatic. The quality of the average seller-finance candidate has improved greatly while the demand for seller financing has soared. Done right, seller financing has become a safe bet—and a lucrative business venture.

“Seller financing has become a safe bet—and a

lucrative business venture.”

The profile of the typical note manufacturer has changed, too. Once specializing in financing rehabs for risky buyers, the seller-finance specialist now serves a broad range of clients and properties. He or she has become more sophisticated in the business of seller financing, becoming well-schooled in the intricacies of the practice.

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Creating quality notes for quality buyers requires the same metic-ulous process used by responsible banks and other lenders. Note manufacturers take applications, scrutinize credit information, ver-ify data, evaluate properties, structure the terms of the sales, and collaborate with affiliated businesses and agencies. But unlike their peers of the subprime-lending era, seller-finance specialists apply common sense to their decisions.

I Do Diligence

Approving your seller-finance buyer is a lot like choosing your life partner.

Few people enter marriage without having first gathered considerable information about their mate. It starts with that first encounter, when your date presents himself or herself in the best possible light. He appears honest; she seems responsible. As you get to know each other, you like what you see and you want this to work. You make plans.

Smart couples approach the altar having already discovered and judged their fiancés’ background, character, values, strengths, and weaknesses. They conduct their own due diligence before their “I do’s.” Many singles even hire a private investigator to do an independent background check on their potential mate before proceeding with the romance. It’s smart with dating; it’s smart with lending. And it sure beats eloping after a brief encounter!

To avoid the same pitfalls that brought down Bear Sterns, Morgan Stanley and others, the note manufacturer must be thorough when qualifying buyers and approve only those of the highest caliber.

This is why due diligence is so critical in the note business. The

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savvy note manufacturer will ensure good underwriting, not only to achieve a smooth and successful transaction but also to minimize defaults and maximize returns. A thorough and independent inves-tigation will reveal the accuracy of the buyer’s statements regard-ing assets, income, employment, debt, and so forth. Due diligence allows the seller to make sound decisions based on solid facts, not subjective impressions, and to distinguish the quality borrower from the risky one. This is especially critical because the number one vari-able that affects the cash value of the note is the buyer’s credit.

“The number one variable that affects the cash

value of the note is the buyer’s credit.”

Ronald Reagan said it best with his signature phrase, “Trust but verify.”

The note manufacturer must also understand all relevant legal issues, regulatory matters, and documentation requirements. By applying their advanced knowledge and sound principles to the manufacture of notes, these specialists can help ensure that the prod-ucts are investment quality, with top-dollar value and exceptional resale potential.

Many note manufacturers underwrite the loans before they’re even made and then manage them thereafter. Increasingly, though, they’re lending their expertise to others. Or, more accurately, they’re selling it.

Middle-class homes, condominiums, commercial buildings, and more are being seller financed like never before. Even luxury homes and million-dollar estates are selling via owner-carried notes. This creates a clear and growing demand for the note professional’s expertise in creating quality notes.

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Many industry leaders are now reaping huge rewards by providing technical support and consultation to others. These experts assist realtors, professional real estate investors, and individual property owners who are eager to finance the sales but don’t know how to structure a quality note. The note professional can earn consulting fees of ½% to 2% of the loan amount. Not only do these specialists earn generous income from their expertise during the note-manufac-turing process, but they also establish the right to broker these notes from their clients in the future. This adds yet another dimension to the business of seller financing.

Beyond Seller-Finance Notes

The fourth profit center in this industry goes beyond the seller- finance notes per se. True, the industry’s leading note professionals conduct all aspects of the business, from buying and selling notes to manufacturing notes, in-vesting in notes for their own portfolios (and finding some real bargains during the process), and selling their expertise to others. But they also understand broader issues relating to the real estate and mortgage industries.

This allows the seasoned seller-finance professional to foray into other specialty areas, such as non-performing notes. This is a par-ticularly lucrative venture involving the purchase of bad notes from the banks and mortgage lenders at bargain prices. The note profes-sional generates significant income from low-cost investments and high-dollar resales.

Experienced and knowledgeable note professionals are also adept at flipping properties; purchasing and subdividing large tracts for numerous small and more lucrative sales; and devising other cre-

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ative real estate transactions. In addition, they’re frequently of-fered exceptional real estate bargains and other lucrative opportuni-ties, because of their reputation and numerous contacts within the industry.

A Safe Bet

If you decide to pursue a career in the note business, it’s essential that you develop a thorough understanding of seller financing. Like most ventures, you need to learn the “rules of the game” in order to achieve success.

Using an analogy, let’s say you’re at a blackjack table in Las Vegas. Before placing any bets, you need to understand how the game is played, what it takes to win, and how to apply that knowl-edge to increase your odds of success. With even a rudimentary un-derstanding of blackjack, for example, you’d know better than to take a hit if you have 18 and the dealer shows a 4. The more you know, the better you are at playing the game. But if you know little, what stays in Vegas is your money.

Similarly, a lot of people who seller finance property or invest in notes are recklessly gambling with their own resources. That’s because they don’t understand the basic principles of seller financ-ing and how best to apply them. Rather than analyze the opportuni-ties carefully and then judge wisely, they unwittingly close risky deals and then pay the costly consequences. As with blackjack, you need to know the odds of winning before playing your hand.

Smart seller-financing is profitable. I know that personally, as do most of my colleagues in the business. There are plenty of aces in the huge and growing pool of existing notes and opportunities to create your own. There are also plenty of resources for acquiring expert knowl-edge in every aspect of seller financing to help ensure your success.

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The Basis BasicsDuring my 29 years in seller financing, the question I’m most frequently asked by property sellers is this: At what point should you make a very aggressive underwriting decision?

The answer depends entirely on how much you’ve invested in the asset. If it’s worth $100,000 and you’ve invested only $25,000, you have a “low basis.” With a low basis in a property, you can better tolerate a default risk.

In a way, you’re like a pawnshop owner. You’ve taken as collateral an item whose value is far greater than the money you’ve loaned. If the transaction proceeds as planned, your customer repays the loan with interest, and you make a profit on your loan to him. If your customer defaults, you take possession of the collateral. Having invested only a fraction of its retail value (i.e., the small amount you’ve loaned your customer), you can now sell it to someone else for a healthy profit.

That’s why the higher the percentage of your investment in the property (your basis), the less risk you can afford to take. Let’s say you’ve invested $75,000 in that $100,000 property. You’re now at a risk of losing much more, should delinquency and default occur.

With a low basis you can lower your underwriting standards. I’ve known and even consulted with real estate investors who maintained a fairly liberal underwriting practice. These transactions succeeded because the investors had a low basis in their properties. With an inordinately low investment in the property, say 20 or 30%, you can tolerate the additional risk. This strategy, however, is more challenging. It demands greater attention to detail, and requires more time and resources to service the portfolio. But if you have a low basis, you can apply lenient qualifying criteria and still be successful.

With a low basis, you can create a solid portfolio. And that will allow you more time on the beach.

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It’s a Good Thing—It’s a Good Time

Seller financing’s time has arrived. It’s now much more profitable than most areas of real estate, other sales ventures and investment opportunities.

You can be extremely successful in this business, if you use a methodi-cal approach that calculates the risks and weighs the benefits. Add a lit-tle elbow grease and you’re on your way to a secure future. Trust me, I know . . .

Having purchased more than 30,000 seller-financed notes and handled more than half-a billion dollars in sales, I’ve seen a pattern of success and failures. These aren’t just theoretical concepts; they’re actual expe-riences involving a range of variables. Not since the 1980s, have I seen the extraordinary increase in, and necessity for, seller financing. With due diligence, good judgment, and some common sense, you too can become very successful with seller financing.

In addition to achieving your own financial goals in this business, you can provide a much-needed service to others. There’s heartfelt satisfaction in knowing you’ve helped other people to realize their dreams of own-ing their own homes, despite the financial challenges that so many are facing today. And the proceeds from seller financing return to the local community, rather than enter the balance sheet of an institutional lender somewhere else.

Seller financing’s time has come. And the timing couldn’t be better. n

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Marketing TipsQuality marketing is fundamental to your success, no matter what business you enter. As a supplement to this introductory report on seller financing, I’m pleased to share a series of articles I’ve prepared over the years that focus on marketing. Each offers an important lesson that should be considered when establishing and conducting your business. Together, they will help ensure that you attract clients and achieve quality transactions.

1. Name High! How to name your business

2. Name Low!How to use your business name

3. Card Smarts Your most important marketing piece

4. In the KnowDeveloping the ability to succeed

5. Top Tips Creating quality marketing messages

6. Greetings and Salutations!How to begin a business letter

7. Fishing for GoldTargeting the best prospects

8. Horse Pucky!Discover what your prospect needs

9. Note This!The value of handwritten notes

10. Dang!Crafting a great headline

11. Picky, Picky!Positive, relevant messages matter

12. From Bombs to Notes, Timing is Everything!When No means No, not now

13. Number One and OnlyBeing the first, being the best

14. Do the Hustle!Getting ahead of the competition

15. On Notes and Toilet PaperThe power of emotion

16. Well Meaning AdviceMeaningful messages mean business

17. Romancing Your ProspectsFocus on them, not yourself

18. ???Raising questions to raise business

19. Ready, ‘Net, Go! The value of your own website

20. Familiarity Breeds Consent!Getting to know your prospects

21. *Beep*Phone messages that get returned

22. Reach Out and Touchpoint SomeoneCreating multiple contacts with clients

23. “But Wait! There’s More!”Punching up your offer

24. The Secret to Success!Surprise!

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Martketing Tip #1:

Name High!

“Developing a great company name is arguably the most important marketing decision you’ll ever make.” – Jerry Fisher

Your business name is at the core of your professional identity, creating first impressions and establishing lasting ones. So, what goes into a great company name?

Descriptive: A descriptive name pays off big time. Bundy’s Very Used Cars gained national attention when they renamed it Rent-a-Wreck. Jiffy Lube, Payless Shoes, and Hamburger Helper are also highly descriptive. You can rescue a vague name by adding a descriptive word. For example, Gotcha Covered could represent any number of businesses, but Gotcha Covered Upholstery is clearly defined.

Positive: An upbeat name boosts business big time. The Ohio-based company that sells gourmet brownies as corporate gifts is perfectly named Brownie Points. On the other hand, Granny Joe’s Ice Creamatorium gives me the chills.

Memorable: Names that are easy to remember have an edge over the competition. Royal Flush Plumbing is memorable because it’s both clever and descriptive. The high-fiber cracker company, Bowel Buddy Bran Wafers, is also memorable, but I wouldn’t want to touch the box! Be memorable but positive.

Relevant: Irrelevant names provide zero marketing value. Naming your company after your dog, for example, will be meaningless to others—unless, of course, you’ve named your pooch Note King. Similarly, you should avoid using your own name or initials. That’s because people don’t care who you are; they want to know what you can do for them.

Easy to Spell: Avoid odd spellings, unusual words, or foreign terms. They’re more difficult for prospects to find online or in directories. Any wonder why Krispy Kreme’s sales are plummeting? Okay, that’s a stretch, but you get the point!

A lousy business name can really take the wind out of your sales. Choose wisely!

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Martketing Tip #2:

Name Low!

A while back, I wrote about developing a great company name, (“Name High!”). Now, I’m going to tell you how to use it.

Simply put, you should be subtle. Let’s consider clothing manufacturers as an example. Quality duds identify their brand names on labels tucked discreetly inside the garments—at the neckline, in a side seam or at the waistband. You’ll never see “Armani” stamped across the back of a suit or “Brooks Brothers” emblazoned on a dress shirt. Only trendy brands, like B.U.M., Juicy, and Phat, display their names prominently. That’s because their customers care more about the brand they wear than how they look.

When it comes to seller financing, people don’t buy your brand; they buy your services. While your company name is arguably your most important marketing decision, you should use it judiciously. Plastering it prominently across your advertisements, webpage, sales letters, and brochures will have little impact on your marketing efforts.

Instead, your marketing materials should shout value.

Dyson™ is running a terrific ad that follows this principle perfectly. Next to a prominent image of a vacuum cleaner, the headline hollers, “GRRR!” You can almost hear this mean machine growling at the dirt! This brilliant headline compels you to read the small print, where you discover that this is the Dyson™ Animal, a vacuum cleaner specially designed to go after pet hair. By then, you’re sold. Rather than shout the company name across the page, which would get little attention and zero response, the headline brings this product to life. It’s hard to ignore a growling vacuum and the unique benefit that follows. Picture and copy perfect.

When it comes to your business name, remember this: You have more important things to tell your prospects than who you are. Tuck your name into a seam.

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Martketing Tip #3:

Card Smarts

What’s the most important marketing piece you’ll ever use? It’s your business card! These portable billboards carry your message directly to the consumer. In fact, your prospect will actually have physical contact with your information.

Here are a few tips for getting the most marketing mileage from your business card:

Quality: Spring for high-grade card stock and professional artwork. Your business cards should also complement your stationery and envelopes, with matching color and texture. Consider adding premium accents, such as embossing or foil. Eye-catching, top-quality cards earn a second look, and are more likely to be saved. Better still, they suggest you’re an established, successful professional.

Content: Some cards don’t even hint at the nature of the business; others offer little more than names and numbers. Go beyond the basics by including a meaningful message. Let prospects know what you do—and why they should do business with you. Include a descriptive, positive and distinctive slogan that will compel the reader to contact you. And don’t forget your web address!

Flip Side: Note that 50% of your card’s limited space is on the back. Use that area to cite a testimonial, list your services, offer a bonus, post your credentials, or provide other useful information.

Distribution: Include your card whenever you mail anything even remotely relevant, such as a mortgage payment or other financial correspondence. You never know who’s on the receiving end. (Perhaps someone with a note?) And always carry cards with you. A chance encounter with a fellow passenger on a flight, for example, could lead to a deal!

Collect Them: Whenever you meet another business person, ask for one of their cards. Then follow up with a note referring to the pleasure of meeting them. Before sealing that envelope, don’t forget to include your card!

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Marketing tip #4:

In the Know“Ability is nothing without opportunity” – Napoleon Bonaparte

Napoleon’s quotation really hits the nail on the head. No matter what your particular skill, it’s useless to you and the world if you lack the opportunity to apply it. You’re like the pianist without a piano. Your potential is silent.

When it comes to the note business, there’s plenty of opportunity to apply your abilities and reap the rewards. Just two years ago, only 1 in 400 real estate transactions involved seller financing. Today, 1 in 50 transactions is a seller-financed sale. Some real estate experts predict this could increase to as many as 1 in 10. For everyone in the note business, opportunity is abundant. Better still, there are relatively few seller-finance specialists to handle all the potential transactions.

But opportunity alone isn’t enough. We can learn much from Napoleon by flipping his quote. As for the note business, I’d say, “Opportunity without ability is nothing!”

It takes know-how to succeed: knowing how to find quality notes, knowing how to market effectively to prospects, knowing how to negotiate with note holders, knowing how to manufacture notes, and knowing how to close deals. Calling yourself a note professional without acquiring the necessary skills to perform every task competently is like calling yourself an architect because you own a yardstick. You need to have the right tools and you need to know how to use them.

That’s why you should take advantage of every opportunity to learn. Attend seminars, take online courses, go to professional meetings, and study industry materials. These will help to increase your level of expertise—and that’s the nitty gritty of note business success!

An aside: To be fair to Napoleon and his quotation, seller financing wasn’t big in his day. But then, neither was Napoleon.

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Martketing Tip #5:

Top Tips

We Americans are assaulted by a constant barrage of marketing messages—thousands of them—every single day. As a result, few get our attention. Fewer still get acted upon.

When promoting your business, you need to cut through the clutter with powerful messages of your own, so that prospects will pay attention to you—and they’ll respond. Here’s how:

Personalize your message. Address your prospect by name on the mailing label and in the salutation. Refer to the property location, size of the note, or anything else that’s specific to them.

Avoid bland headlines. Whether you’re sending a sales letter or a postcard, grab your reader’s attention with a headline that will make them want to read more. (Sorry, but your business name ain’t it!)

Focus on your prospects’ needs. Remember those old posters where Uncle Sam says, “I Want You”? These days, people don’t care what you want; they care about themselves. That’s why today’s recruitment message is, “Be all that you can be.” Don’t focus on what you do; focus on what you can do for them.

Tell them what to do. Include a call to action. “Call me today,” “Visit our website,” and “Return this postcard” are more effective than simply citing a phone number or enclosing a reply card.

Give them a reason to do it. Offer a free report, complimentary evaluation, no-obligation quote, or anything else of value. Or simply explain why selling their note makes sense.

Add urgency. By adding “now,” “today,” “hurry,” or some other timely reference, you’ll encourage a prompt response. In fact, that’s why operators were always “standing by.” Those gals were eagerly awaiting our calls, so we just had to respond right away!

To boost your marketing efforts, apply these tips . . . and do it now!

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Marketing Tip #6:

Greetings & Salutations!

Dear Sir or Madam . . .

Don’t you just cringe when you receive letters that greet you with such blatant indifference? This generic, gender-neutral, form-letter formality leaves me cold. Although it’s hardly inviting, we guys might be okay with the dear-sir salutation. But should you call any woman a “Madam”? (And if you already do, I doubt you do so in a formal letter!) It’s time to fight the trite and personalize your correspondence a little—even if you won’t be naming names.

Instead of the bland and disinterested Dear Sir or Madam mix, why not try Dear Colleague, Dear Representative, To Our Friends in Real Estate, Hello!, To a fellow professional, Dear Note Owner, or simply, Greetings?

Of course, you should use the individual’s name whenever possible, not only in the salutation but within the letter itself. Personalizing the letter with the recipient’s name and, better still, citing specific information about the property, will go a long way toward enhancing your credibility. Imagine you’re Joe the Note Holder, and you receive a letter that starts with, “Dear Joe Jones: The note you hold on the Elm Street property could pay off your debts in just weeks. Do you want to know how?” Wouldn’t that opening get your attention?

Just be sure you substitute the person’s data for each placeholder. There’s nothing worse than sending out messages that say, “Dear [Insert Name],” followed by [Insert Name] throughout the body copy. I’ve been tempted to reply to such emails with, “Dear Your Company Name: This is Insert Name Speed . . .”

When you complete your perfect message, you’re now ready to sign off. But you might want to consider a friendlier and fresher close than the typical . . .

Very truly Yours, W. Eddie Speed

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Marketing Tip #7:

Fishing for Gold

If you’re an investor who finances sales for your buyers, you want to get the most bang from your advertising buck. Too often, though, seller-finance advertisements address the broadest audience possible—and focus on the least qualified candidate. These ads attract buyers with lousy credit, zero assets, sporadic employment, and/or substantial debt.

That’s why your promotional materials should always target the most promising prospects. And that’s true no matter what marketing media you use. Whether you seek buyers through newspaper ads, yard signs, websites, blogs, email blasts, flyers, direct mail, billboards, Craig’s List or any combination of marketing tools, market to the folks you most want to reach.

How do you lure the best buyers? To use a fishing analogy, it starts with the bait—or more accurately, the line that you use.

“Bad Credit? No Credit? No Problem!”

Sound familiar? Search this line on Google™ and you’ll find more than 287,000 listings. Earlier today, I even heard it on the radio. Perhaps you’re using this line yourself.

There’s a fundamental problem with this marketing approach. The bad-credit/no-credit message speaks to the folks you least want to attract. It announces, albeit unintentionally, “No qualifications required!” If you can fog a mirror, you can get a loan.

That’s why you almost never find good-credit buyers with bad-credit ads. Quality prospects don’t consider themselves as high-risk types, so they won’t respond to this message. Before spending one more dime on this kind of advertising, you should ask yourself: Is this the buyer I’m looking for?

Fish for anything that bites and you’ll waste your time and your tackle tossing those unwanted nibblers back into the pond. In this business, it’s what you hook—and keep—-that counts.

Market wisely and you’ll catch the prime candidates—hook, line and sinker!

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Martketing Tip #8:

Horse Pucky!

You’ve probably heard the story about the boy who was caught digging through a pile of horse manure. His friend asked, “What are you doing? Are you NUTS?” The boy replied, “Heck no! I figure with all this manure, there’s got to be a pony in here somewhere!”

Now, I’m not going to liken seller-financed notes to horse manure, but this story does offer an interesting point. Often, note owners don’t realize what they might have in that “pile” of note paperwork. To most of them, seller-financed notes represent little more than a monthly payment. No cash value, no growth, no options, no change—just a regular payment, month after month. But notes are also a burden, especially around tax time. With defaults on the rise, they also carry some increased risk. Regardless, few note owners consider the possibilities and the downsides of these assets.

With a little guidance by an industry pro, note owners can conjure up all sorts of options for their notes. With some imagination, for example, the note can become a ticket on a cruise line, the keys to a new car, or a kitchen remodel. It can be the answer to mounting credit debt and those wasteful interest payments. Or it can mean the tuition for a college education, an early retirement, or a sound investment with solid growth potential.

The lesson here is to dig deep. Find out what your prospect really wants or needs. Help him or her see how that note can be transformed into something truly meaningful and highly valued. Maybe even a pony.

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Martketing Tip #9:

Note This!When was the last time you received a handwritten note? Unless you’re a bank teller involved in a robbery, it’s likely been ages.

There was a time when handwritten notes were commonplace. Then along came the mass-produced greeting card, the typewriter, and now the computer. Even preprinted names on holiday cards have become acceptable substitutes for handwritten signatures. Photocopied holiday letters are gaining such popularity, there might soon be a central production source for those, as well.

All these timesavers have reduced the handwritten note to near extinction. That’s a shame, because nothing stands out like a handwritten note. And nothing gets remembered like it, either. After all, Hallmark does pretty and witty, but it doesn’t do personal. Neither does your keyboard—not like a pen gripped between your fingers.

For your business mailings, you might lack the time and the digital stamina to handwrite messages to all your prospects. Still, you should at least consider writing a brief thank-you note to the few people who respond. You might also handwrite addresses on your envelopes. (Did you know that 60-70% of direct-mail envelopes are tossed, unopened? That’s because they’re so impersonal!)

Even a Post-It® note with a hand-scribbled word or two (“Thanks” or “Call me!”) can add a simple yet personal touch to your computer-generated, mass-produced letter. At the very least, hand sign your letters—or make them appear to be hand signed.

Make note to handwrite your notes! You’ll more likely be remembered by the note owners on your list. In return, they’ll hand it to you—their business, that is—for paying special attention to them!

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Martketing Tip #10:

Dang!Made you look! No, I’m not upset. I’m just illustrating the power of a good headline. As you can see, a good headline prompts you to read the message that follows. And that’s why quality headlines are essential for effective marketing.

Too often, however, headlines don’t “make you look.” In fact, an average of four out of five people read only the headline of marketing materials and then move onto something else. A mediocre headline means you’ve wasted most of your marketing dollars on a message that few people will read. Dang!

Whether it’s on your web page, your brochure, or even your sales letter, the headline is the most important wording of your entire message. Written right, it compels your prospects to continue reading—and that’s where you turn them into customers.

Years ago, this theory was tested on a long-running advertisement. When only the headline was changed (and much improved), the response rate jumped by 1700%! Studies show that as much as 75% of an advertisement’s success depends on its headline.

For a gotcha headline:

• Raise curiosity. Chances are, you started reading this because you wondered why I was so angry.

• Ask a question, because they’re hard to ignore. Imagine if the dairy industry replaced its wildly successful “Got Milk?” with a ho-hum “Buy Milk.”

• Cite a problem: “E.D. Got You Down?” (Note the added use of a question.)

• Offer a benefit: “Lose Weight While You Sleep!”

• Tap into an emotion, such as fear: “Internet Predators May Be Stalking Your Child!”

• Refer to the news: “How Record-High Foreclosures Affect You!”

Create an attention-getting, compelling headline on everything you write. Otherwise, you might be uttering a few curse words over your response rates!

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Martketing Tip #11:

Picky, Picky!

Recently, I saw a billboard that featured a larger-than-life image of a little girl. Cute kid but even at a drive-by glance, I could see that she was picking her nose! Not only had the business owner used her own name as the headline (a definite no-no), she added this unfortunate subheading: “Are you picky? Let me help you!” I never did figure out what was being advertised, nor did I care.

This brings us to this month’s message: Use visual images that support your business image, not undermine it. Your accompanying copy should send a positive, relevant message, as well.

When Kraft Foods introduced a new cheese product, the headline teased, “We cut the cheese so you don’t have to.” Clever, yes. Even funny. But unless you’re selling Beano, you don’t want people seeing your product and thinking of, well, you know. Kraft later pulled the ad. They pulled the product. No word as to whether they pulled the finger . . .

Sometimes, a double meaning is unintended. Here’s an actual headline from a mortgage company ad: “Ask about our plans for owning your home!” This begs the question, wouldn’t you rather own it yourself?

Finally, avoid images and messages that mean something only to you. A picture of your poodle or your current girlfriend, no matter how adorable, won’t captivate your note owners. They’d rather look at their own pets. Likewise, naming your business after your late parakeet will serve neither you nor your bird.

Instead, create a positive, benefit-rich message with words and images that are relevant to your prospects. Then they’ll pick you!

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Martketing Tip #12:

From Bombs to Notes, Timing is Everything!

One of the best-kept secrets of World War II was the Japanese Balloon Bomb. Our enemy built more than 10,000 paper balloons and attached them to firebombs. Once filled with hydrogen, the balloons floated across the Pacific Ocean. About 1000 of them landed in North America, mostly in the Northwest. Two of them drifted all the way to Michigan!

The balloon bombs were designed to set the United States on fire. Our government took the threat so seriously that it dispatched nearly 500 military aircraft as interceptor planes. In addition, 2,700 soldiers were assigned to extinguish balloon-bomb fires. Yet the weapon system was a complete failure.

Why? Because the Japanese launched their secret weapons from November 1944 through March 1945 —that’s right, during our wet, winter months. Only a few minor brushfires occurred, despite the incendiaries that were scattered widely over the United States.

Having heard nothing about the fate of their balloons, the Japanese abandoned their potentially devastating weapons project. Soon, our dry season was on its way in. Had they only waited . . .

The lesson here: Timing is everything.

Whenever your note owners say they’re not interested, that might be true today. But in a month or two, maybe more, their circumstances could change. A medical emergency, relocation, daughter’s wedding, son’s college expenses—you name it—could result in a very different response. Even some time for a little afterthought could make a difference. Don’t write them off. Instead, give them time to reconsider.

Don’t make your communications a seasonal activity, or worse, a one-time event. If a prospect says, “No,” it might really mean “No, not now.” In a few months, you just might spark something.

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Martketing Tip #13:

Number One and Only

Do you remember when Avis, the car rental company, ran commercials touting, “We’re Number Two”? They grabbed the competitive edge by declaring, “We try harder!” Avis’s first-rate campaign about a second-rate position boosted its business bigtime.

But second place is rarely a plus. Often, coming in second is more like being in the back half of a two-person horse costume.

We all know that Sir Edmund Hillary is recognized as the first person to climb the summit of Mount Everest. But who was second? That equally awesome feat was achieved by Hillary’s companion, Sherpa Tenzing Norgay. In fact, Norgay made Hillary’s ascent possible. Do you remember the second man on the moon? That was Buzz Aldrin. (At least the name sounds familiar.) And some folks would be hard-pressed to name the second president of the United States. It was John Adams, who had also been vice president—that’s right, second place—to George Washington.

Worse than second place, though, is last place. In the note business, they’re one and the same. Miss a deal to someone else, and you’ve come in last. No runner-up trophy, no silver medal, no consolation prize.

The lesson? Strive to be first. Commit to doing whatever it takes to ace out the competition—all the competition. Find top-quality notes and market aggressively to their owners. Build relationships with your prospects. Follow up on each call, email message, and direct mail piece. Add value to your communications by sharing free reports, no-obligation quotes, and other bonus offerings. Do whatever it takes to convince owners to sell their notes to you before your competition even discovers those gems.

Become number one by conducting first-rate marketing campaigns and providing first-rate service. When conducting your note business, move to the front of the horse!

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Martketing Tip #14:

Do the Hustle!

“Things may come to those who wait, but only the things left by those who hustle.” – Abraham Lincoln

Are you a hustler? In the note business, that can be a good thing. If you’re seeking substantial success, it can be a necessity.

Hustlers chase after notes. The really good hustlers chase after the really good notes--those with the right loan size, collateral, lien position with a qualified payor, and a motivated seller.

The operative word is chase. Not attempt. Not inquire. But chase. Chasing means both perseverance and speed. When chasing after that note, you don’t give up after your initial contact, nor do you wait weeks for your prospect to return your call or respond to your mailing. You move quickly and persistently. You chase each note until you’ve closed the deal--or the owner closes the door on you. (Figuratively speaking!)

It’s becoming increasingly important to hustle after notes. That’s because owners are turning to seller financing like never before. Just two years ago, 1 in 400 homes were sold through seller financing. Today, it’s 1 in every 50. With the continuing upheaval in conventional lending, there’s every reason to believe this trend will continue. With even more opportunities to create, broker, and/or invest in notes, why would you need to hustle? In a word: competition.

Realtors, mortgage specialists, and real estate investors are beginning to recognize seller financing as a viable business model, especially compared to their traditional professions. As a result, they’re entering this field in growing numbers. Yes, there will be more notes--but there will be far more note specialists vying over them.

Now’s the time to kick-start your note business. Market more aggressively. Pursue quality prospects more persistently. Follow up more diligently. Go hustle or go bust!

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Martketing Tip #15:

On Notes and Toilet Paper

Want to turn note owners into note sellers? Consider applying the powerful force of emotion to your marketing messages. Here’s why: Most buying decisions are based on emotion and then justified with logic. The decision to sell is usually based on emotion, as well.

Even the most mundane transactions are guided by emotion. Let’s say you need to buy toilet paper. Concerns about your budget might draw you to the cheapest brand. If you’re anxious because you’re in a hurry (perhaps you really need toilet paper!), you’ll grab the first package you come across. A desire for comfort due to a “tender tush” might steer you toward the softest brand. For your guest bathroom, you’ll impress visitors with the scented, fluffy stuff in soft pastels. (Or so my wife tells me.) Although subtle, emotion is behind each decision.

For discretionary transactions, such as the sale of notes, emotions rule. Therefore, your marketing messages should address an underlying emotion. This can have a powerful impact on the readers’ reaction.

For example, you can raise the very real emotion of fear with a headline like this: “Do Overdue Bills Keep You Awake at Night?” You then alleviate the fear by presenting your solution: you’ll buy their notes; they’ll get cash, they’ll pay down those debts, and they’ll sleep well at night. The facts—how much money, how soon—provide the logic that will justify their decision to sell.

By tapping into emotion, you relate to your prospects on a personal level. You “feel their pain”—or joy, desire, greed, pride, whatever. Indeed, your marketing messages should address a variety of emotions, because individuals respond to different emotional triggers. One toilet paper does not suit all!

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Martketing Tip #16:

Well Meaning Advice

Have you heard the one about the blonde who stops off at a library, goes to the front desk, and says, “I’d like a burger with fries.” The librarian replies, “Can’t you see this is a library?!” The blonde looks around and is startled by her surroundings. She then turns to the librarian and whispers, “I’d like a burger with fries!”

With apologies to blondes, including my own wife (sorry, honey), this story illustrates that understanding what’s said is not the same as understanding what’s meant. And that leads to this month’s lesson.

Do prospects understand you when you offer to buy their notes? When you explain the numbers, the discount, the payment schedule, and so forth, do they understand what you’re saying? Or are they confused by the industry jargon and the complex calculations?

Too often, the only message note owners understand is this: They’ll get less money if they sell their note now than if they hold onto it. Some deal, huh? If they only understand the bottom line, they’ll likely say “no.”

That’s why your prospects should learn what it could mean to them if they sell their notes. They could pay down their debt, saving considerable interest over time. They could splurge on something of personal value, e.g., a grandchild’s education, a new vehicle, or a vacation. They might invest in something that will increase in value over time. Have they considered that the declining dollar means that their buyers’ monthly payments will be worth less over time? All these have meaning.

Discover what matters personally to your prospects, and then help them understand how their notes can be transformed into something of real value to them.

Translate facts into meaningful benefits. And if it helps, add a side of fries!

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Martketing Tip #17:

Romancing Your Prospects

Do you remember your worst date ever? Chances are, you spent the entire evening with a self-absorbed loser who cared nothing about you. The conversation—or monologue—was all about him or her. Your date showed little interest in listening to you, let alone learning about you.

You probably recall that the first date was also the last date.

Businesses often commit this mistake when marketing to potential customers. They focus entirely on themselves—how magnificent they are, and how fortunate the person would be to have their products or services.

When businesses act like that self-centered date from the dark side, they rarely get a second chance. Their prospects don’t call them in the morning. They never get to first base, let alone score.

When marketing your business, how can you avoid “getting dumped” by your potential clients? Simply put, you need to romance your prospects. Like an admirer pursuing a romantic interest, you need to commit your time and attention. This approach also requires multiple “touchpoints.” (No, not the touching of points that could get you slapped!)

Touchpoints are the individual contacts you make with your prospects. Each one reinforces your identity and reminds them that you’re interested in them. Whether a phone call, email message, letter or other communication, touchpoints build relationships. And the best relationships—the ones that serve your needs—also serve their needs.

So become familiar with your prospects. Listen to their concerns. Discover their interests. Demonstrate your interest in them. Send them relevant information. Drop them a handwritten note. Call them to follow up on an inquiry. Thank them for their time.

Be that “perfect date,” one who is interesting, sincere, valuable, trustworthy, and grateful. Your prospects will drop their other suitors and commit to you!

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Martketing Tip #18:

???

Whether they’re raised or answered, questions are fundamental to effective business communications. Questions raise curiosity, and engage the person who is being asked. They create dialogue and allow the transfer of information, typically in both directions. Questions and their answers are fundamental to developing a relationship.

But questions need not be limited to two-way conversations between individuals, either in person, over the phone, or via email. Questions can also be effective when raised in print, even though the communication is one way. In fact, questions in marketing materials can turn ho-hum factual matter into aha! revelations.

Questions make terrific headlines in print ads. Perhaps the most famous is the United Dairy Industry’s “Got Milk?” Imagine if, instead, the milk-moustache ads said, “Buy Milk.” You likely wouldn’t buy it, let alone even think about it. But “Got Milk?” gets you to thinking beyond the message itself. Do you have milk? Do you need milk? When will it run out? Should you buy some more milk now? Next thing you know, you’re heading to the store.

Questions compel readers to look for answers, or to check to see whether their answer is correct. That makes them want to learn more.

Questions can also challenge a person’s assumptions. How’s this for a headline on a note pro’s sales letter: “Is your seller-financed note actually costing you money?” See? Made you think!

Questions often prompt readers to seek answers directly from the source of the marketing message. Let’s say that a note owner calls you for the answer to a question you raise in your marketing materials. This gives you the opportunity to question them in return. Their answers will then allow you to provide personalized information—information that can lead to a sale.

Questions work wonders. Don’t you agree?

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Martketing Tip #19:

Ready, ‘Net’, Go!

If you don’t have a website, you’re one of only a few business owners who haven’t joined the cyberage. Some 30 billion web pages now deliver information, create leads, promote products and services, entertain, share ideas, or conduct commerce online. The total number of web pages has tripled in just two years.

In the note business, a website won’t likely find many prospects for you. The Internet won’t drive a lot of traffic to your site. However, a website can be a powerful tool for marketing to your potential customers. The mere existence of a website helps establish credibility and engenders trust—and it gives you an exceptional vehicle for promoting your services.

Having a web address on your business card, letterhead, and promotional materials tells your prospects that you run a legitimate, up-to-date business enterprise. And when they visit your website, they can feel all the more confident about doing business with you. You can post your professional experience, sales history, and testimonials. Cite awards and specialized training, if appropriate. Add a blog, and report the latest industry developments. Include a photo so they’ll start to feel as though they know you.

What else to include? You can offer plenty of useful information about seller financing on a frequently-asked-questions page (FAQs). For example, you can describe the process of selling a note. You can list the reasons why your website visitors should consider selling their notes. As important, you can tell them why they should sell their notes to you!

So, get yourself a website, a domain name, and an associated email address. Then put your web and email addresses on all your printed materials. And don’t forget to invite callers to visit your website, as well. Soon, there’ll be 30 billion and one!

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Martketing Tip #20:

Familiarity Breeds Consent!

Imagine your doorbell rings. You answer it and find a stranger standing there. He says, “Let me buy your house for cash!” Now, the last thing you’d say is, “Okay. Write me a check.” You wouldn’t sign your property over to a complete stranger, and certainly not on the spot. Odds are, you aren’t even thinking about selling your home. This encounter won’t likely prompt you to consider it.

Too often, note brokers approach their unsuspecting targets as aggressively as this unwelcomed visitor. They wave cash at unacquainted note owners, expecting deals to close when it’s only the doors that do. Discouraged, they cross names off their lists, never to contact these people again. Eventually, they drop out of the business altogether, leaving promising prospects behind.

Fundamental to your success as a note broker is your ability to establish relationships. Familiarity leads to sales, so get to know your prospects. Your first contact should be introductory, not a cold call and a hard sell. Let them know who you are and why you’re interested in their situation. Approach them with the possibilities their notes might bring them. Deliver friendly, timely and useful information. Be interested and interesting, helpful and trustworthy. Offer a free analysis. Show what’s in it for them to do business with you. Remember, even the Fuller Brush Man demonstrated his wares before asking for the sale.

By getting to know your note owners, you can give them personalized service. You might recommend, for example, that the individual should consider a partial sale, receiving less money but at a smaller discount, instead of relinquishing the note altogether.

When note owners are familiar with you, guess whom they’ll call when they’re ready to sell. And guess what they’ll say. “Okay, my friend. Now you can write me a check!”

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Martketing Tip #21:

*Beep*

Does this sound familiar? You call your prospect, eager to chat about that note you’re anxious to buy. You’re pumped up to go live. But instead of a friendly hello, you hear, “At the tone . . .” So now you’re faced with that blasted recording. What do you do? Do you simply hang up? Do you fumble through an awkward sales pitch? Do you mumble your number and wait for a call back? Do you even have a clue what you’ll say?Here’s why you must have a phone script in place before you place that call: According to a recent survey by Selling Magazine, more than 70% of all phone calls go straight to a recorded message. That means that your odds of reaching a living, breathing human being are only about one in four. You should be prepared to leave a message with every call you make. And to help you do so, here are some phone recording tips:

• Be pleasant and friendly.

• Be brief.

• Introduce yourself, cite the reason you’re calling, and leave your callback number--slowly and clearly.

• Personalize your message. You can refer to the location of the property, the size of the note, or some other specific piece of information that shows you’ve done your homework.

• Give them a reason to call back. For example, you might offer a “substantial price” for the note; assure them there’s no obligation; or offer additional information, such as a free report on the benefits of selling now.

Before you get another beepin’ phone message, prepare your response. Leave behind a well-crafted recording so your prospect will want to hear more. Next thing you know, your phone will be ringing!

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Martketing Tip #22:

Reach Out and Touchpoint Someone

“Here, kitty, kitty, kitty, kitty . . .” If you’ve ever owned a cat, you know that one “here, kitty” is never enough. The feline mantra requires at least three repetitions, maybe a dozen, to achieve its effect. Sometimes, kitty never responds, no matter how often you call. Nor how loudly you yell. Nor how determined you sound.

The same is true for your prospects. Call them once, and they won’t come running to you. More likely, they won’t respond at all. Like cats, prospects are skilled at ignoring their pursuers. Being loud or determined won’t help. It usually requires several contacts – e.g., sales letters, postcards, phone calls, and email messages -- to get the note owner to respond to you.

Each contact is called a “touchpoint.” Touchpoints are invaluable because they help establish your identity as a serious note broker. Well-crafted touchpoints will get your prospect’s attention, create interest in your offerings, spark a desire to learn more, and prompt action.

As you might guess, it takes multiple touchpoints with the note owner to reach a transaction. Some studies suggest at least five touchpoints are required; others call for seven. Your prospect might need even more.

Regardless, one touchpoint is never enough. You can prove this to yourself by answering: What commercials do you recall? What direct mail do you remember? What ads have you seen? Odds are, you were exposed to numerous messages about the products or services that come to mind. (And it’s likely that a talking lizard was among them!)

For a successful note business, you need to create multiple touchpoints. Together, they’ll turn note owners into note sellers. “Here, client, client, client . . .!”

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Martketing Tip #23:

But Wait! There’s More!

Sound familiar? If you watched television during the 1950s and 1960s, you couldn’t help but catch Ron Popeil, hawking everything from the Veg-O-Matic and Pocket Fisherman to Spray-On Hair and Egg Scrambler in the shell. And you heard this legendary line.

Beyond the sheer novelty of the Ronco products were Popeil’s pioneering methods for marketing them. For example, when it seemed as though the offer couldn’t get any better, a voiceover would announce, “But Wait! There’s More!” What followed was an irresistible bonus: two for the price of one, free shipping and handling, a lifetime guarantee, bonus accessories, or some related gadget, absolutely free. If you act now!

We can learn a lot from Ronco advertising. The commercials always delivered proof (product demonstration), proclaimed exclusivity (unlike anything else), boasted superiority (better than anything else), created urgency (for a limited time only), presented a call to action (“Call the number on your screen!”), and promised convenience (“Operators are standing by!”).

Perhaps most compelling, Popeil always stressed the exceptional value of the item, in terms of consumer benefit as well as the dollar value. One would be a fool to turn down such a deal!

How effective are these methods? Ronco products have generated more than $1 billion in sales.

When marketing your note business, think Ronco. Explain why you’re the superior choice. Show proof of your claims through testimonials from satisfied clients. Offer a valuable bonus, such as a free report or a small cash bonus. Add urgency by placing a time limit on your special offer. Make it convenient to reach you, day or night. And announce that that the offer is available only from you. Soon, you’ll generate a better response from your own marketing efforts. Ginsu knives, anyone?

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Martketing Tip #24:

The Secret to Success!

You’re about to learn the real secret to success. Ready? Okay, here goes: There are no secrets. Not one.

If you want to be successful, the lessons are already out there for the learning. Just follow the lead of successful people in the note industry.

Observe what the seasoned note professionals are doing and how they do it. Attend industry conventions and courses, read relevant materials, participate in workshops, and discuss the note business with colleagues and the pros. Watch the news for economic trends and real estate developments.

Become an expert at marketing your services in ways that will get the attention of—and a positive response from—your prospects. How? By analyzing the strategies of the seller-finance experts. Do they market through intense direct mail campaigns? Follow leads aggressively? Offer free reports and cash bonuses? Maintain an active and comprehensive website? Identify prospects through scrubbed database searches?

You can also learn from the experts’ mistakes. You’ll avoid costly pitfalls by gleaning insights from their experiences rather than learning from your own mistakes.

Among the things you’ll learn is that learning never ends. You’ll learn that times change and so does the business. What worked before might not any more, so the successful note pros change with the times. You’ll also learn that you must put time and energy into your business, that you should never give up at the first “no,” and that it’s all worth it in the end.

So, what’s the secret to my success? It’s no secret. I simply apply the proven methods for finding notes and negotiating sales. And since there are no secrets, you now know how to profit from notes. Just follow my lead!

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