Are “Cash Flow Notes” a Legitimate Way to Make Money?
Question: I’ve seen commercials for “cash flow notes” on late night TV. What are cash flow notes? Are they a legitimate money making opportunity? D.S. Palm Springs CA
Thanks for your question.
I’m glad you’re watching late night infomercials for ideas. I’m serious.
Most people berate late night infomercials.
But you can learn a lot about making money and legitimate business opportunities by watching them.
It’s not always because of the products being offered. But rather how the products are sold. When infomercials are repeated is a pretty good indication something is working.
But my answer is yes. You can make money with “cash flow notes”.
I’ll give you some background on these babies, and explain how and where to make money with them.
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The first thing to realize is the competition for “cash flow notes” is fierce. That’s not a bad thing. In fact, competitive markets are often a very good thing.
But there’s a right way and a “hard way” to do this business.
The market is significantly larger today than it was five or six years ago because of the economy and the collapse of the real estate market.
The Real Story Behind Cash Flow Notes
Let’s get real….
Most of the time, the people on the inside track for the best cash flow notes will be a) seasoned investors b) bankers and c) real estate lawyers (and judges).
However, I’ll show you how to find the best cash flow notes.
You’ll also need to find qualified buyers and more to get paid! I’ll show you what you need to know to be successful in this market.
What the heck is a cash flow note?
Cash flow notes are IOUs. They are an agreement to pay someone a specific amount of money, with interest, over a specific period of time.
The most popular cash flow notes are commercial and residential “paper” (also known as a mortgage).
There are cash flow notes available in almost every conceivable real estate investment. Most (but not all) cash flow notes are secured with a title deed.
But the neat thing is you can find cash flow notes for everything from accounts payable, structured settlements, royalties, leases, pre-construction deals, and more.
I’ll focus on real estate cash flow notes in this week’s issue.
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Here’s an example of a simple cash flow note…
The Johnsons sell their $250,000 home with owner financing.
The Johnsons ask for $25,000 down and finance the balance of $225,000 at 10 percent interest. The Johnsons receive monthly payments on this “note” until it’s paid off.
That’s where the “cash flow” part comes in.
An entrepreneur calls the Johnsons and offers them $220,000 for the note on their home. The Johnsons agree. The entrepreneur buys the note and resells it to another buyer who is willing to pay $225,000 for it.
The first entrepreneur keeps the $5,000 difference and the Johnsons get $220,000.
This process is contingent upon locating note sellers and brokering a deal for each note to willing buyers.
In the real world…which is how I look at business opportunities…. it takes a lot of time, energy, and money to build a network of qualified cash flow note sellers and buyers.
But entrepreneurs are making money in this business.
What’s more, there’s an established network of entrepreneurs already doing these deals… they’re called bankers, lawyers, judges and real estate investors!
Cash Flow Notes Insider Secrets Revealed!
One secret to “winning” in the cash flow business is direct marketing.
That’s right!
Who would’ve guessed direct marketing is a key? But it is.
You’ll need to find and reach qualified cash note sellers.
Cash note sellers are typically home owners, business owners, and other real estate investors who have provided financing to buyers.
One of the best ways to reach a large targeted audience quickly (if you don’t have an established in-house list of contacts) is with TV.
That’s right – television.
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You see…the guys selling cash flow note business opportunities on late night TV are selling kits and packages. But the smart entrepreneurs are building online networks of buyers and sellers and taking a percentage of every deal.
This business is not dependent on TV advertising, or a huge advertising budget.
And you won’t have to build a huge network of buyers and sellers to make money.
I just wanted to show how some smart entrepreneurs are making money in this business.
Anyway, it’s fairly obvious cable and satellite TV advertising is down big time.
Therefore, cable and satellite TV channels are willing to make incredible deals on advertising.
For example, you can target more than 1 million late night viewers in New York City with a “spot ad” for under $2,500. This was unheard of five or six years ago.
You can check out National Cable Communications – they specialize in “spot” commercials.
You can even setup spot TV commercials with Google TV Ads.
And don’t worry….you don’t have to pay actors or film crews to get your commercial done. There are companies offering pre-made spot TV commercial packages, such as Spot Runner, Inc.
I’ve heard Spot Runner was having trouble financially, so proper due diligence is in order. But you’ll see others in this space…just Google “cable TV spot ads”.
Anyway, Spot Runner offers TV advertising (and remnant packages) in hundreds of markets across the U.S. and Canada.
The benefit of pre-made commercials is cost savings. You can select from dozens of pre-made commercials and simply add your message, website, 800 number and bingo – instant exposure!
The most expensive part of any commercial is the production – that’s money you have to spend before you’ve made anything. SpotRunner enables you to eliminate a large portion of this expense.
But some marketers prefer making their own commercials.
It’s your choice.
The objective of any marketing is to attract qualified note buyers and sellers.
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When you run TV spot ad commercials the objective is to attract both note buyers and sellers.
You’ll need a list of qualified note sellers… and a list of qualified note buyers.
Then all you have to do is match them up!
Granted, there is some legwork involved in this business.
Plus, it’s not entirely free of red tape or paperwork…(which always makes me nervous).
But the business is fairly simple when you have qualified buyers and sellers.
Your compensation is based on the difference between the seller’s price and the buyer’s price.
If running commercials or larger direct marketing campaigns is too much for you at this point, you can start out small by running promotions in your local paper or on popular local websites too.
Most local newspapers and web portals are desperate for cash and advertising too.
Negotiation is king!
An acquaintance of mine generates $50,000 to $75,000 per year on real estate notes and pre-foreclosure deals by simply running cheap classified ads in small regional newspapers. Cheap meaning $20 to $50 per month!
Newspapers are great source of leads in this business.
And if you haven’t noticed, newspapers are dropping like flies!
Like I said, newspapers desperately need your business in order to survive… and most of them will offer huge discounts on pricing. But you have to negotiate with decision makers.
It’s also a good idea to have a simple website which attracts note buyers or sellers.
If you Google “cash flow notes” and you’ll see hundreds of examples of simple websites in this market niche.
You could one website designed to attract note buyers and one website to attract not sellers.
If you go with a strategy like this I recommend two separate websites (one for buyers and one for sellers).
Note buyers and sellers are two VERY DISTINCT markets and mindsets.
Here’s what I’m talking about….
> Note sellers are usually in need of immediate cash.
> Note buyers on other hand usually have a longer-term objective.
Granted, note buyers usually are looking to selling notes as quickly as possible.
But generally speaking note buyers are not in desperate need of immediate cash.
When you’re marketing to note sellers you’ll be addressing their fear, uncertainty, desperation, and other survival instincts.
But when you’re marketing to note buyers you’ll be addressing different emotions, such as an excitement for seizing an opportunity.
Whatever marketing approach you use, you’ll want to capture your prospect’s information, such as an e-mail, address and phone number.
There are tons of ways to market this business and capture qualified leads.
But the objective remains the same: Find viable, qualified sellers and match them with qualified buyers.
There are also websites which enable you to find qualified cash flow note buyers and sellers too.
Here are a few cash flow note websites:
A couple of other sources for locating cash flow note buyers and sellers is CraigList, The Note Network and Yahoo! Real Estate.
A New Cash Flow Niche: Making Good Money from BAD Paper
Don’t kid yourself… most real estate businesses require at least some money… or quick access to it.
If you can get your hands on some money or quick access to it, I found a “niche” business opportunity which might provide a nice side business for you.
A good friend exposed this business to me over coffee… and I was amazed at what I heard.
Here’s the lowdown …
Have you heard the term “bad paper” before?
It’s simple.
Bad paper is a broken promise to pay by another party.
The agreement or “paper” is usually secured by real estate (or some other asset).
The payer is in default when they fail to pay in accordance with the agreement – and that’s why it’s “bad”.
It’s obvious there’s no shortage of “bad paper” or “toxic assets” in the market today!
There’s another term which you’re probably familiar with – it’s called a “mechanic lien” or “contractor’s lien”.
A lien is filed at the local recorder’s office, the courthouse (or at a town office) whenever a contractor does work on a home and doesn’t get paid.
A lien of $3,000 (this is the average lien amount) on a $200,000 or $300,000 property is very bad.
As real estate values continue dropping to new lows, there’s a boatload of BAD paper.
Here’s how my friend makes money from bad paper…..
1. Grab a list of mechanics’ liens at the local recorder’s office. Don’t worry – its public information. Recorder’s offices often make this information available online so you might not have to get up from your chair!
2. Make a list of contractors who have liens on properties. Make another list of the homeowners’ or business owners’ addresses. Let’s say you find a roofing contractor who has lien on a homeowner’s property for $1,500 (because of a failure to pay the balance for work performed)…write his name and the homeowner’s name down.
3. Now send the contractor an unsigned check for HALF of the amount of the lien. My friend uses a window envelope. Using my example in #2 the check would be for $750. You could include a note with the words “I’ll send you this check today” or something to that effect. My friend said 90% of the contractors accept the offer! After all, half of the money right now is better than none of it ever!
4. Now, contact the homeowner and inform them of the seriousness of the lien. You could mention you are entitled by law to all of the collection costs. In most states, you are entitled to include “collection costs” of up to $1,500 to satisfy a mechanic’s lien.
In this example, you could charge $750 for collection costs. So, in this example the total amount owed by the homeowner is $2,250 (the $1,500 lien plus a $750 collection fee).
5. Finally, you present an offer to the homeowner to settle the lien for HALF of the amount due. In this example it would be $1,125. Your letter should be useful and accommodating – there’s no need to threaten a lawsuit.
My friend helps the homeowner or business owner understand a lawsuit will be filed if the lien is not satisfied. You can remind the homeowner or business owner most mechanics’ liens are satisfied in favor of the contractor or supplier.
In most cases, the homeowner will agree and write you a check for $1,125.
6. Lastly you write a check to the contractor for $750. You get to keep the difference of $375. ($1125 – $750) This is your profit.
Granted, this is a simplified example. Most contractors’ liens are considerably larger than $1,500.
Here’s How Bad Paper Works in the Real World
If a contractor has not been paid for services rendered he or she can file a lien against a homeowner or business.
When someone has a lien on their property they are unable to sell it or make changes to it. The lien can also show up in credit reports and other publicly accessible documents.
A contractor simply wants to get paid. A homeowner or business owner wants the lien and problem (contractor) removed.
An entrepreneur like you can “fix” the problem by offering the contractor half of the value of the existing lien, and the homeowner or business owner with a way out at a reduced cost (and avoiding court action).
When the contractor accepts your offer for half the amount (paid immediately), he or she willingly removes the lien from the homeowner and business owner’s property.
For an entrepreneur in this business, there are only two forms / sales letters which need to be mailed, and maybe a phone call or two.
What’s more, in larger cities and towns hundreds of liens are filed each and every month – and this is where the opportunity exists.
Obviously, there’s room to work your deals up or down.
Making money on bad paper is a unique side business – especially if you’re already doing real estate deals.
The downside is if the homeowner or business owner has a problem with the work that was done – or with the supplies that were delivered. But you can determine this before risking any time on the deal.
It is fairly simple to determine if a homeowner has a valid “counter-claim”.
A homeowner or business owner will be required to provide viable “proof” of shoddy workmanship, or proof work was never rendered.
Granted, homeowners or business owners often have complaints against contractors. Unfortunately the law often sides with the contractor or provider of services.
In most cases, 90 percent+ according to my friend, liens are settled quickly and easily without going to court.
A Surprise Cash Flow Niche – Mobile Home Paper!
There’s a surprise niche in the cash flow business almost no one pursues.
It’s called mobile home paper.
I’m not kidding.
When you search this term on Google, you’ll find a ton of information on the topic.
Here’s “mobile home paper” in a nutshell…
Almost every real estate investor, speculator, and developer considers mobile homes the bottom of the barrel.
Whether this is true or not is irrelevant.
As an entrepreneur you can make money in this market.
What’s more, there’s more than enough “bad mobile home paper” to go around!
If someone is at risk of losing their mobile home to the bank because of a hardship or bankruptcy, you can offer to buy their note (at a discount of course).
Then you can rent the mobile home to the homeowner, refinance the deal, or do a combination of both.
One of the reasons I like this niche business is because mobile homes are relatively inexpensive.
In fact, I located more than a dozen mobile homes (in fairly good condition) in my neck of the woods for less than $50,000 each.
In some cases, the deals were contingent upon moving the mobile homes from a park or land. I think this is common problem in this market.
But the reality is mobile homes can easily moved and set up in a park or on land for $3,000 or less (and everything is negotiable).
Anyway, mobile home paper is a great niche in the cash flow note market.
I hope that helps!
Regards,
Marc Charles
“The King of Business Opportunities”
(Ed Note: Marc Charles is referred to as “The King of Business Opportunities” ….and for good reason. He should be known as “The King of Legitimate Business Opportunities”…because he’s launched, bought, sold reviewed and advised on hundreds of businesses and money making opportunities. He understands legitimate opportunities. Marc has agreed supply League of Power members with crucial updates regarding legitimate business and money making opportunities.)
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