| y"> | | | | neighbor agreed to buy the property on which to |
| Investing in Debt | | | | build a house. Between them they created a |
| I know you "Financial Guru's" know what I mean | | | | promissory note or promise to pay $10,000 plus |
| when I use the term, Private Financing, but most of | | | | interest over a certain period of time. The purchaser |
| us haven't had your education. And, sadly, our | | | | would build his new home on the property. The |
| primary and secondary institutions of learning spend | | | | farmer had just invested in debt by becoming the |
| little time, if any, on preparing students for the world | | | | bank and by receiving payments with interest." Sound |
| of credit and debt. Most young people learn about | | | | familiar? But there's more.... |
| credit, and don't understand what it means, until they | | | | Notes Are Negotiable Assets |
| graduate high school and get to college. | | | | With no money out of his pocket, the farmer had |
| The bankers and credit card companies meet | | | | turned one type of asset, land, into another, a |
| freshmen during college orientation and pass out their | | | | mortgage note, which would provide monthly income |
| cards. The first time our students swipe those | | | | (principle and interest) for the life of the loan. |
| miraculous pieces of plastic and get what they want, | | | | But that was not his plan; he wanted to seed his |
| their feeling of financial power is awesome. After all it | | | | other fields. So he went to the nearest "Note |
| will be 30 days before they'll see the billing and | | | | Broker" and sold his promissory note for about |
| interest due for their purchases. | | | | $8,500 and then bought seed and planted a crop |
| This is, of course, the wrong side of the "debt | | | | which he harvested the next Fall and sold for |
| equation" as I see it. One should want to be on the | | | | $20,000, a $10,000 profit over the market price of |
| side of the banker and not be the debtor. But how | | | | the land. |
| does one accomplish that? | | | | Using My New Knowledge |
| My, Late in Life, Education | | | | After more conversation with Frank, I caught on and |
| You see, I had no formal education in financing and | | | | asked a question. "I'm not a farmer, but I own a |
| therefore I was always on the wrong side of the | | | | home which has equity, (market value minus debt) |
| debt. My education in Real Estate Financing started | | | | let's say 50% equity. If I sell my home and create a |
| much later in life than it should have. In fact I met | | | | note for the 50% equity, I can get paid with interest |
| Frank, my instructor, about a dozen years ago when | | | | until the loan is paid off?" Let's say when I want to |
| I answered an ad about "Investing in Debt". | | | | retire. |
| Just the ad caption intrigued me enough to call the | | | | All Frank did was smile at my answer. I then realized |
| number and set up an appointment. At first I didn't | | | | that I owned a "farmer's field" right under my own |
| understand the idea but after our conversation, the | | | | roof. I could become the bank and lend my equity to |
| process became more clear. I had never heard the | | | | a potential buyer of my home for principle plus |
| term "Private Mortgage" before that day, at least | | | | interest or I could "sell the note" and get my cash |
| not by that term. | | | | now. |
| Private Mortgage Notes | | | | The Forgotten Art, Revisited |
| Simply stated, private mortgages are exactly the | | | | Since that time I have sold two houses using a lease |
| same as loans you get from the local bank which | | | | purchase agreements and private mortgages to |
| lends money to buy a real estate. The banker lends | | | | develop income. One of those was my mother's |
| the money and the mortgagor (you) pay back the | | | | home when she moved into a retirement residence. |
| money plus interest over time. You own your house | | | | Her earnings over the past 4 years have been over |
| and the bank's depositors are happy to make | | | | $80,000 which she uses to fund her rent and living |
| interest on their money. Everybody wins! | | | | expenses, her personally funded retirement fund. |
| Private Mortgage "Holders" are little private banks. For | | | | What If They Don't Pay? |
| instance, your next door neighbor might be a private | | | | By this time you "Financial Guru's" and some |
| financier who lends a buyer the money to buy a | | | | Attorneys, who are reading this article, are busting to |
| home. In fact, I found out that my parents bought | | | | tell my readers that there is a "risk" that the person |
| their first home with a private mortgage, financed by | | | | who borrowed the money won't pay off. However, |
| our next door neighbor. They were, by no means | | | | government statistics show that about 4%, of the |
| financial experts, but they accepted his generosity | | | | millions of outstanding mortgages, go bad. And that |
| and bought their first home. What did they know | | | | means that, in 96% of the millions of mortgages, the |
| that I didn't? | | | | borrowers Do Pay! |
| A Pleasantly Rude Awakening | | | | Yes,, 96% of mortgagors Do Pay. And you're rights, |
| My conversation with Frank opened up the | | | | to get paid on a "Private Mortgage", are protected |
| extraordinary world of Private Financing and Creative | | | | by the law in every State, just like the loans the |
| Financing. But before your eyes glaze over and you | | | | banks give. |
| stop reading, listen to Frank's story about a farmer, | | | | So, what if we actually taught our children about |
| who needed money to buy seed for his fields. | | | | "The Forgotten Art of Private Financing"? And about |
| "Having no cash available, he surveyed a piece of his | | | | being on the correct side of the "debt equation". How |
| property and offered to sell it for $10,000. A | | | | much better off would their futures be? |