Buying Paper - Discounted Mortgages

BUYING PAPER-DISCOUNTING MORTGAGES....

This opportunity can be called many different things but it IS a legitimate business. Unfortunately, there are some that will promise you thousands of dollars per week in this business.

How It Works:

You want to buy a house but you don't qualify for "conventional" or bank financing. That is you can't get a traditional mortgage for whatever reason. You go to the owner and say "I have the 10% down payment but I can't get a mortgage, could you hold the note?" You are in effect asking the current owner of the house to be the bank and hold the mortgage. You would then make your payments to the owner. The owner would do this for one of several reasons including, they own the house free and clear, don't need the money and would like to get a monthly income stream or they like you and would rather you get it than the motorcycle gang that's looking at it. Reasons for doing this could be infinite. Anyway it happens and is the basis for many real estate programs which we'll cover later.

So time has passed and you've been making your payments faithfully for five years. At this point the note-holder (former owner) decides she needs an influx of cash to move to Florida. She can ask you to try for a conventional mortgage or she can sell her note.

You still owe $80,000 and can't qualify for a mortgage so the note-holder contacts some funding companies to get a quote for her note. She finds a company that will give her $50,000 TODAY for the note. She can either take that offer or continue to look around. If she accepted the offer, you would then make your payments to this new company.

This becomes a money making opportunity when you put a middleman into the picture. You advertise or perhaps you know the homeowner. She comes to you and says she wants to sell her note. You go to the funding company and they tell you they will pay, again, $50,000. You as the middleman go to the homeowner and tell her that you have found a company that will pay $45,000 for the note. If she accepts you have mad $5,000. How? The funding company has agreed to pay $50,000 for the note. The owner has agreed to accept only $45,000 so you get to keep the balance, in this case $5,000. In fact, the less you get the owner to accept, the more you will make. So, if you get the note-holder to accept only $40,000, your fee in this case would be $10,000. In most cases the note-holder will not know how much you are making and it's probably better that way if you are making $10,000 on a deal this size! You won't have many friends if you treat them like this.

There are several companies, some even doing infommercials, that will teach you all about this business and GUESS WHAT?? You don't have to go out and find your own funding companies. You can bring your deals to these companies and they will give you a quote that you can then bring to your customer. Nice of them huh? What they are doing is getting themselves thousands of "ears & eyes" all around the country. You pay for all your own ads and there is no guarantees that the deals you bring to them will be accepted. So you could do all that work, spend all that money in advertising, and still have nothing to show for it.

Shortly after one of these infommercials runs you will see many "We Buy Mortgages" ads in your local pennysaver. That's a problem. They will sell their package to whoever calls with their credit card. So you and your neighbor could be placing ads in the same paper and chasing the same deal.

This type deal can also be done with lottery winnings, insurance settlements and any other structured settlements. So if you win $70 million in the lottery but don't want to wait 20 years to collect the money, you could sell your right to the yearly payment, for 35 million now. As the middleman you might be able to make a nice commission on this one!

As I said, this is a legitimate business but you don't necessarily need any of these companies to get started. They are in effect saving themselves millions of dollars in advertising by having you do it AND they are charging you to get started.

Any mortgage broker worth their salt will know how to get you a quote on a privately held mortgage. You can find out who holds these mortgages at your local county clerk office or if your are lucky enough to know a real estate agent involved in some of these deals, they can point you to the owners. You could contact them and ask them if they might be interested in selling their note. There you have it. The whole business in a nutshell.