Definition of financial freedom
When you hear the words “Financial Freedom”, what images come to mind? For me it’s being able to choose how I spend my time without regard to cost. I always picture looking out over a balcony to a beautiful ocean vista. It also meant a certain “number” for net worth. My perception & definition was slightly altered by a friend of mine. I consider Gary Johnston one of my mentors not just in real estate investing but in life in general. He teaches a class with one of my other mentors, Clyde Wilson on Financial Freedom. There is a lot of lip service given by so called “gurus” claiming to be able to teach you about becoming financially free. Seldom have I been exposed to any real usable education about understanding money by those gurus. Most of it is recycled “motivational” material.
Gary asks this question about wealth, “If you had a lump sum of one million dollars & spent $10,000 per month to live, how long could you live without working?” (assume that your cash is not invested but in a 0% bank account). The answer is, 100 months or roughly 8.3 years. Now what if you had 10 free and clear houses that (or assets) that would pay you $1,000 each house, or $10,000 a month net, for the rest of your life, then how long could you live? What would you rather have, a lump sum of $1,000,000 or 10 houses that pay you $10,000 a month?
This simple question has helped me clarify my definition on what is financial freedom. It has also given me a new awareness on where I choose to spend my time and effort . My focus is to create long-term income for my clients, myself & my family.
Here is a quote from one of Gary’s mentors, the late Norbert Volney. He would ask Gary this question when he was a young boy, “What two things pay you while you sleep? The answer is…Rent and interest.
My work is to find & acquire assets that will pay me either rent from real estate, or finding notes & trust deeds that pay me above average interest for a very long time. If you would like me to do the same for you, please contact me & let’s see how I can help you.
Getting started in note investing
I got started in note investing in Los Angeles out of sheer frustration. I was trying to buy single family homes in foreclosure in 2001. I was diligently knocking on doors of people in foreclosure & going to trustee auctions and getting either outbid at the courthouse steps or getting doors slammed in my face. If you remember back then, borrowing money was very easy & prices were starting to escalate, so sellers weren’t that motivated to sell at the prices I was offering. I had just quit my full-time job & I needed to make real estate investing work for my family. At the time my wife was working as an educational consultant with the school district & her paycheck was essential for us to survive.
I learned about note buying from a well respected investor & decided to give it a try, because the door knocking wasn’t working. After a few weeks of changing gears, I got my first note deal. It was a non-performing $13,000 note that I bought for $500. I couldn’t believe it, the seller actually agreed to my offer. After that I was hooked. I then I found a $30,000 loan I bought for $6,000 & just kept going.
Now, I routinely find double & sometimes triple digit returns on finding notes. Most of the notes I buy for my own account range between $5,000-$50,000 . It all started with my first $500.00. One of the features I like is that I can diversify into several notes very easily with relatively low to moderate investment amounts.
My goal now is to acquire a nice portfolio of notes that will make payments to me for the next 10-30 years. That in combination with a portfolio of rental property should make for a very comfortable retirement. I strongly suggest you look into note investing for your retirement, education for your children or grandchildren, or just general financial freedom.
Hey everyone I’m teaching a class on creating notes
creating notes with owner financing
Well more specifically, it’s about using owner financing for agents, brokers, and investors.
CREATIVE FINANCE WORKSHOP
When: Thursday, June 17th
1:30pm-2:30pm
Where: Keller Williams Training Room
4644 Admiralty Way, Marina del Rey
* Only 10 Spaces Available! *
Do You Want?
A Larger Pool Of Buyers
Help Getting Full Price
To Sell Properties Faster
To Sell Difficult Properties
More Listings
Do You Have?
A Great Buyer That Can’t Qualify?
A Listing Getting Ready To Expire?
A Deal Falling Out Of Escrow?
When Banks Say “NO,” We Say “YES!”
BEST OF ALL! MAKE MORE MONEY!
SHIFT TACTIC #10- EXPAND THE OPTIONS –CREATIVE FINANCE
“We launched our real estate business in the late 80’s & 90’s with creative financing. The opportunity of those strategies has returned.” – Don and Ryan Zeleznak, Phoenix, AZ (quote from SHIFT by Gary Keller, Dave Jenks, & Jay Papasan)
Your Instructors,
Dawn Rickabaugh: CA Real Estate Broker, writer, educator, coach and author. She has been interviewed and quoted by influential publications such as Investor’s Business Daily, and Wall Street Journals Market Watch. She is dedicated to liberating & empowering buyers, sellers, and real estate professionals in today’s market.
Ellis San Jose: CA Real Estate Broker/Agent with Keller Williams, Marina Del Rey.
Full-time investor, consultant, & educator. Ellis has been involved with both commercial & residential real estate investing for over 20 years. Ellis has been interviewed about real estate by publications such as Money Magazine. He is also the co-founder of FIBI (For Investors By Investors) with over 6 chapters in California and Texas.
For more information please contact Ellis San Jose
(310) 414-9757
Smart investing with IRA & other retirement accounts
Hey everyone,
I wanted to share an excerpt from the website of one of my note mentors Henry Dvorken. Henry is a spry 81 years old & I was so happy to have the opportunity to have him teach me, for a full day, his approach for note investing.
Tax free & tax deferred investing with notes can supercharge your goal for financial freedom:
As you no doubt know, growth inside a retirement account is either tax deferred or if it is a ROTH, it is TAX FREE for ever. Since there is no tax, IRA owners will accept lower returns. Think of the low rates on TAX FREE municipal bonds. Look at the chart below:
Yield on the Note Tax Bracket Tax Bracket Tax Bracket
10.00% 28% = 13.89% 32% = 14.71% 35% = 15.38
In other words, if income taxes are involved, the yield has to be the greater amount in order to net 10%. One note of caution even though they might except less then 10%, never sell a note for a yield less then the note rate, as there could be a problem in the event of an early pay-off.
You find the following note:
| N | I | PV | PMT | FV |
| 240 | 10 | 80,000 | 772.02 | 0.0 |
16 payments have been made on time
| N | I | PV | PMT | FV |
| 224 | 10 | 78204.78 | 772.02 | 0.0 |
After a long discussion with the note seller, he admits that $37,500 would solve his problem. You offer to buy ½ of the note for ½ of the remaining payments. “I know you only need $37,500, but I’ll pay you $39,102.55. Will that be OK?”
| N | I | PV | PMT | FV |
| 112 | ?? | 39,105,22 | 772.02 | 0.0 |
I = 19.96
You offer an IRA a yield = to the note rate of 10.00% and they agree. You now have several choices
- Sell all the payments to the IRA and make $16,967.92
| N | I | PV | PMT | FV |
| 112 | 10 | 56,070.47 | 772.02 | 0.0 |
$56,070.47 – $39,102.55 = $16,967.92
Keep $150 per month and make $6,073.68 up front and get $16,800 in payments over time.
Remember if you buy the note inside your own IRA, and then sell it to an investor, the profit goes NOT TO YOU, BUT YOU’RE IRA. If you buy the note and then flip it to someone else’s IRA, you can keep the cash flow and profits for yourself.
There is literally over a TRILLION Dollars in IRA’s Using these funds will make you more competitive in the note and real estate game.
Henry Dvorken
Meeting the millionaire next door
If you want a great series of books to read, pick up The Millionaire Next Door series by Thomas J. Stanley & William D. Danko. It was published in 1996 & the premise of the book was to research America’s wealthy & find out the truths & myths about who they are, how they became wealthy, how they think, act etc. The research shows that the “millionaire” image in the media of ”expensive cars, big houses & big lifestyle”, is a myth & couldn’t be further from the truth. The typical millionaire is very conservative & frugal on how they live. They buy used cars, live very simply & think very differently than the majority of Americans when it comes to money & spending.
I have made it one of my missions to find & meet as many “millionaires next door” as I can to interview, listen, learn & emulate their habits. I have had the distinct pleasure & honor to meet one of my favorites, Clyde Wilson. www.theoriginalclydewilson.com I spent yesterday afternoon with Mr. Wilson touring some of his properties, meeting his banker, getting quizzed about my knowledge in real estate, & running a financial calculator (don’t ever get caught without a HP10bII when you are with Clyde).
Clyde was a high school drop out who became wealthy by applying knowledge he learned from other successful investors. Find out more about Clyde in the link above. He is sitting on the far left in the picture.
His influence on me has been incredible. I learned the importance of building long term, trusting relationships, especially with your banker. He has been working with the same bank & banker for over 30 years. Clyde also stressed that spending time building knowledge & expertise will reward you if you choose to become a willing student. Most importantly, understanding the “numbers” with a financial calculator, they illustrate the reality of whether you will become financially free or stay in the rat race. If you don’t know how to use a financial calculator, please get one & learn… It is really very easy these days with all the technology available. You basically punch in the numbers & the calculator does all the work. The challenge is how to apply the numbers in your everyday life.
How I make money with notes & why this is the right time to invest
I had a conversation with a very seasoned real estate investor who asked me “Why do you like notes so much? They don’t make sense to me, why do you only settle for 8%-12% returns at best?”
While 8%-12% isn’t a bad return on your money, especially in this economic climate. I proceeded to tell him about how I make incredible returns investing in notes, and no I am not limited to 8%-12%.
We have all witnessed a tremendous crash in real estate values in the last few years. Many people borrowed a lot of money because of the cheap interest rates & the overall euphoria of consumption in the last decade. Let’s dissect what happens & examine the real opportunity.
Say Joe & Sally homeowners buy a home for $100,000 in 2005. He or she borrowed $98,000 from XYZ Bank to purchase the home. Let’s assume Joe & Sally have monthly payments of $1,000 per month for the next 30 years. Then in 2010 because of the economy, Joe loses his job & Sally is the only income earner in the family & responsible for all the bills. To compound the problem, now the value of their home goes down to $50,000. They fall behind & can’t make the $1,000 a month payment. XYZ Bank has so many of these bad loans that they just want to sell the loan to an investor so they can stay solvent.
An astute investor buys the loan from XYZ bank for $25,000 the bank is happy to get rid of the loan & move on. The investor then contacts Joe & Sally. Joe & Sally are so happy to speak to a real person who wants to truly keep them in their home & work things out. They work out an agreement so that they can keep their home if they agree to make payments they can afford. Let’s say the agreement is for $700 month.
If we run this on a financial calculator to figure out return:
n= 300 There are 300 remaining payments due (360 months or 30 yrs minus the 5 years Joe & Sally have already paid)
i= to be solved
pv= -25,000 (amount the investor paid)
pmt=700 (the new modified payment)
the return to the investor = 33.59%
not too shabby.
The best part is that everyone wins. The bank gets their money so they can stay solvent, the homeowner saves their home with a new lower payment, & the investor receives a great return for putting the whole thing together. WIN-WIN-WIN
Guess what folks, there are literally trillions of dollars of debt…notes & mortgages out there that are available to be purchased for pennies on the dollar. Many people think well, that’s great but don’t the big guys only get to play this game because they buy pools of notes in $5-10 million dollar bulk purchases? How can a little investor like me take action & participate.
I want to explode that myth right now, I have been buying individual notes since 2001. I have literally bought notes for as little as $500 (although that is not a typical transaction). There are plenty of notes that you can invest in for under $25,000, of course you can find notes at a much higher price point. I am just trying to illustrate how accessible these investments are. They are not limited to the Billionaires & Wall Street funds.
I hope you can see why I like notes & why I am so excited to be investing in them right now.
If you want to learn more, please don’t hesitate to contact me. I moderate a monthly mastermind group in Los Angeles where we talk about these things & share different investment ideas.
Tortoise and Hare Investing
Welcome to The Note Guys,
Today, I spoke about note investing to a group of real estate investors in Los Angeles. I spoke about the advantages of notes & how they complement my real estate portfolio with income producing notes. I think they liked the idea of having a secured investment generating cash flow in an economic climate where there has been so much volatility & real estate prices have been sliding.
Did you know if you invested $100,000 in the stock market (NASDAQ) index on March 10, 2000 your investment would have been worth $51,578.13? That’s about a -6.60% per year for the last 10 years!
If you had put that same $100,000 and invested it at a conservative 6% for the same period, you would have had $181,939.67!
This really illustrated to me the importance of protecting capital over the long haul & the power of compounding over time. The classic turtle & hare fable applied to real life.
I’ll post some other tidbits that I shared in the presentation in future posts.
Share your thoughts..