This is a very insightful article by Lew Sichelman.

http://www.marketwatch.com/story/invest-in-trust-deeds-not-companies-pitching-them-2011-05-13

He is a nationally syndicated columnist who writes for Realty Q & A
Lew has been covering the housing market for more than 40 years, responds to readers’ questions on real estate.

We here at The Note Guys only deal with individual trust deeds. Although we have been asked many times to create a “note fund”, we aren’t convinced that is the right direction to go.

WASHINGTON (MarketWatch) — Question: I invested all my savings into two trust deed companies. Somehow, the chief executives of these two companies got to become multimillionaires, but there is no money for investors like me. Are trust deed companies Ponzi schemes? Does anyone regulate them? —K.S., Palm Desert, Calif.

Answer: I’m not exactly sure what happened here. If you mean you purchased trust deeds from the two companies you mentioned in your question (but I purposely omitted), the trust deeds and the property behind them are the collateral and your safety net, not the companies which sold them.

But it sounds to me more like you invested in outfits which promised a monthly income secured by a pool of trust deeds. That means you only own a fractional interest in the pool, and that would make the integrity of the company the issue, not the deeds themselves.

If the latter case is true, the companies are creating a mortgage-backed security. And as such, they are regulated by state and federal laws that apply to securities dealers. So if you have a beef, and it sure sounds like you do, that’s where you need to go to complain or seek redress.

I spoke with David Krunic, executive vice president of Reliant Financial, about your question. The Houston-based company buys financial paper backed by every conceivable type of property — residential, commercial, even churches. And Krunic has been what he calls “playing in the discount sandbox” for more than two decades.

He said you made a “critical mistake” in not investing directly either in individual properties or in deeds on individual properties. That way, if something should go wrong and your borrower fails to pay as promised, you “have something hard and fast” that stands behind your investment as opposed to some amorphous company.

In a quick, five-minute, down-and-dirty dissertation, Krunic also said would-be investors should stay local. Rather than invest across state lines, put your money to work no more than a car-ride away, and where you know and understand the laws, especially as they pertain to foreclosures and evictions.

Novices might want to start out learning about investing in trust deeds by attending meetings sponsored by local real-estate clubs, where they can pick the brains of those who have gone before them and avoid making the mistakes others have made. “Sit in a room with local specialists and soak up some guidance,” Krunic said.

Also avoid family deals — arm’s length transactions only, please — and overly urban and overly rural properties. Not only do they tend to be more difficult to resell, urban properties are more prone to being stripped and rural properties are more likely to be vandalized. “If you have to go in with an Uzi to collect your rent,” my expert warned, “it’s not a good place to be.”

What is a good place? “Any place where real estate has stood the test of time,” Krunic said. “That will give you a ready market when you go to resell.”

Look for properties or deeds on properties south of the frost-line, where the real estate won’t be damaged if the heat is turned off. Consider a resort area, particularly places where properties tend to hold their value, or near a college town. That way, if something should go wrong, you’ll have a vacation home you can enjoy or something you can rent to a ready-made market of college kids.

Krunic also says you should never invest at a rate of any more than 55% to 60% of current market value so you’ll have a built-in cushion of equity. “You’ve got to have insulation,” he said. “If the next payment never comes, you’ll have plenty of room to get out.”

By the way, getting out can be expensive: When you have to pay an agent to sell the place, a lawyer to handle your foreclosure, any unpaid back taxes and whatever repairs are necessary, your wallet could be $20,000 to $35,000 lighter when all is said and done.

Although Krunic said he believes investing in a company such as the ones you dealt with is a “recipe for disappointment,” he said you must do your homework if you want to go that route. Check them out with the authorities, for sure, but also ask for references from other investors and talk to them directly. Be leery of mass emails or mass snail mailings, too. It’s best that you are referred as opposed to being phished.

But even then, this expert warned, “it’s really scary” when you have to trust someone else to make your business decisions. Worse, he said, if it all falls apart, there’s nothing there for individual investors like you.

Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 40 years. MarketWatch readers are encouraged to send their real estate questions to him at lsichelman@aol.com . Answers will be presented in this column every Friday. However, because of the volume of e-mail he receives, he cannot answer every reader’s query.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Applying Wealth Principles to Trust Deed Investing

I am currently reading a great book recommended by Tim Ferriss, author of “The Four Hour Work Week” & more recently “The Four Hour Body”. The book is called “Poor Charlie’s Almanack- The Wit and Wisdom of Charles T. Munger by Charles T. Munger. Charlie Munger is the lesser know genius behind Berkshire Hathaway. Warren Buffet get’s the lions share of notoriety as a brilliant investor. However, this partnership which has lasted since 1959, exhibits some of the brilliance of decision making skills that have taken place through economic cycles & turbulence.

There are a few great quotes from the book that I intend to have mounted on the wall on my office at The Note Guys, here is one of my personal favorites…
“It takes character to sit there with all that cash and do nothing, I didn’t get to where I am by going after mediocre opportunities”. –Munger

“Accordingly, Charlie is willing to commit uncommonly high percentages of his investment capital to individual “focused” opportunities. Find a Wall Street organization, financial advisor, or mutual fund manager willing to make that statement.”– Michael Broggie

Did you know that Berkshire Hathaway’s annual compounded return since 1965 to 2009 was 20.3%?

The term “Compounding Machine” is borrowed from a money manager Chuck Akre (FBR Focus Fund). Two major components of his definition of a compounding machine were
1) A business that earns an above average rate of return on owner’s capital (equity).
2) A business that also has the ability to reinvest excess cash at above average rates of return.

We just may integrate this definition into the mission statement & identity of The Note Guys.

“We are an investment company that focuses our capital in exceptional opportunistic investments to earn above average returns on our capital & also reinvests excess cash at above average rates of return.”

Happy investing!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

I have been invited to speak at the Ventura County Real Estate Investment Club on February 10th at 6:30pm.  The meetings are held on the 2nd Thursday of the month at Marie Callenders restaurant, in Simi Valley.  I will be discussing trust deed & note investing basics.   My goal is to present practical applications to reach financial goals, such as retirement, education funding, salary replacement etc. using income from smart note buying.

I learned how to invest and manage real estate in Ventura County from my parents.  It will be nice to meet investors near my hometown & hopefully other note buyers from other cities in Ventura County .  I am really looking forward to it.

If you can make it out to the meeting I would love to meet you.  There aren’t a great deal of events for real estate investors or note investors out there, so I am hoping for a good turn out.

Happy investing!

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Full House for 2011

This was the topic for last nights real estate investors mastermind group.  I co-founded this group over 3 years ago with my friend Jeremy Roll.    We both got tired of going to meetings that were low on substance & high on sales pitch aka the latest “get rich quick” scheme in real estate.  We really just wanted to meet other investors to share ideas.  We; instead of complaining about it we started our own groups.  When we added Mathew Owens to our team, who leads FIBI-Long Beach  we really started to take off ( he is younger than Jeremy & I, single & no kids so he has plenty of energy)

Well,  the organization tops over 9 groups that meet in California, Arizona, Texas & re-opening soon in the greater Chicago area (sorry to the Chicago Bear fans they lost a tough game this past Sunday)  If you would like to find out more, come & check us out  www.meetup.com/losangelesrealestate (That’s my group but I also co-host one in Westlake Village in Ventura County with Heidi Toso & Kim S. Mills (Ventura County Investors Mastermind).  We have a great group of friendly & knowledgeable people.

Well 2 of the top 5 strategies involved note investing ( buying discounted notes & private money lending).  Although, The Note Guys buys notes nationwide, we have been able to uncover plenty of opportunities in note investing in our own backyard in Southern California. In fact, we drove a by few properties last week.

Many people ask, “Hey will you teach me how to buy notes & get great returns?”.  Well, although Gerald  (my fellow obsessed note investor & business partner ) & I really love sharing & teaching ( we may do another intro course in Orange County) we don’t make our living selling books, tapes, DVD’s, bootcamps or workshops.   We are really focused on acquiring more & more notes to jont venture with our investors & clients.  We know that this opportunity is so good right now we have to make the most of it.

There have also been many requests to also put together a note fund. Gerald & I were discussing that today while eating some delicious sushi ( he knows some really great places in Orange County) Although we may consider it in the future, for now we really like working one on one with a exclusive client list  & joint venture partners.  We don’t want to grow too fast.

The note business is a very specialized niche & we are even more specialized in what we look for.   We are a bit unusual because we are focused on buying & keeping notes, not just note brokers.  We also like buying non-performing notes….even 2nd trust deeds, which many people won’t touch (which is fine with us because that means  less competition).  We think of ourselves as “note rehabbers”  because we improve the value of notes (We also prefer it to painting & rehabbing houses).

Note buying is a great way to create a long-term income stream without the hassle & expense of owning & managing rental property.

If we can help you re-allocate some of your capital from low yielding investments & perhaps show you some alternatives, please give us a call or email us.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Defaulted mortgages occur when the individual does make payments for their mortgage and the loan taken for the house is considered to be in default, where the agency that holds the note has the authority to take over the property. Bad credit mortgages, bankruptcy mortgages, non-performing paper, are some of the names of defaulted mortgages. Since defaulted mortgages are called by various names, it is not easy to determine whether a particular mortgage lender offers defaulted mortgages.

Defaulted mortgages generally result in the borrower losing the piece of real estate owned. If the situation does not reach that stage, defaulting on their mortgages may decrease their credit score, which will make it difficult to negotiate with banks to allow future loans. Many banks may not allow partial payments for the loans when there are defaulted mortgages. However, the bank sends a notice to the owner within 60 to 90 days prior to the determination of the default of the mortgages.

Defaulted mortgages are included in the range of specialized investments for savvy investors who recognize opportunity in economic downturns such as we are experiencing now. With the crash in the prices of houses and the lack of liquidity in the lending market, many investors need to consider defaulted mortgages now as an investment choice for a portion of their investment allocation.

Many people, who have defaulted mortgages, because of lack of regular payments have many disadvantages to face. Since the lenders consider it risky to lend their funds, such people find it tough to get any kind of credit. They continue to remain mortgage defaulters on their reports for many years from the time the loan goes into default, thereby, affecting the credit rating. Nevertheless, certain investors can utilize loan workout specialists to consider the circumstances of the mortgage defaulters and providing the ability for borrowers to stay in their homes for a win for both the investor & the homeowner.

Note Investing is a proven long-term profit strategy where you can buy and hold it. You need to have patience & expertise to maximize your investment. This way, you can control quality assets at discounted prices and get above average returns & cash flow for years many years. In the beginning, due diligence is very important when you are planning to invest in non-performing notes, as the buying and selling of non-performing notes, which is also known as the defaulted loans, requires the proper specialized education to understand possible risks & returns.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

I read this a few days ago which aligns with the information I received at the note summit attended with Gerald in Denver.

The Federal Reserve Bank of New York (the Fed) is pushing Bank of America (BofA) to buy back a portion of the mortgages they packaged or acquired and then sold to mortgage-backed bond (MBBs) pools, claiming the mortgages were misrepresented at the time they were sold. Several other MBB investment companies, including Pimco and Blackrock, have followed suit and joined the list of those scorned by BofA’s allegedly questionable underwriting and paperwork.

The bank estimates a total of $12.9 billion in buy-back claims as of September 30, 2010.

It looks like we will have a huge supply of notes for a long time. This is a great time to be investing in notes. Have you ever heard the saying “Buy straw hats in winter”? Well guess what folks, it’s going to be one heck of a long winter & I am going to load up on hats.

Stay tuned for more, Gerald & I spent all afternoon planning our new JV program. We will launch it soon. This will allow you to take advantage of the huge opportunity in notes plus having the experience & expertise of the note guys by your side. I am so excited.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Gerald(the other note guy) & I had a wonderful lunch with a fund manager last week. We were discussing the opportunities available investing in 2nd trust deeds. We were both very excited to learn about their approach to controlling millions in dollars of debt for pennies on the dollar.

If you have been to one of our events, I give an example of real deals I have done investing in junior loans (2nd trust deeds) & the huge returns available if you are avoid the pitfalls that many beginners fall into. Gerald & I have developed a relationship with financial institutions selling 2nd trust deeds at tremendous discounts. We are applying our disciplined screening methods to separate what we believe are the best opportunities. We love having the luxury of cherry picking the deals we want.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

We are teaching a class on Secured Income For Life with Note Investing Saturday @ 9am-3pm.  in Los Angeles

10601 Washington Bl.

Culver City,CA (310)280-9196

$199

2 classes in 1!  Note Investing & Creative Financing

) What is a note?

Types of notes:

2) Benefits of note investing

Comparison of alternative investments

How much can I make?

3) Evaluating note investments

Risks

Essential Documents

Protecting your investment

4) How to use notes for:

Supplementing current income

Retirement

Education Funding

Wealth Creation

5) Creating Notes:

Strategies for smart investors

Note Investor Educators:

Ellis San Jose: Managing Partner, The Note Guys,www.thenoteguys.com

CA Real Estate Broker/Agent with KW Commercial, 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.

Dawn Rickabaugh: A.K.A. as “The Note Queen” www.notequeen.com

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.

Gerald Lemoine-Director of Acquisitions, The Note Guyswww.thenoteguys.com Full-time note investor focusing on special situation notes. Defaulted & Non-performing notes. Gerald has been a featured expert on many note investor forums & events. Gerald has developed deep relationships with institutional asset manager

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

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.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

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.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.