How To Make 12%+ Per Year -- Without Rentals! | Episode 153 - a podcast by Bryan Ellis - SelfDirected.org

Want a way to generate monthly cash flow that’s MORE PROFITABLE and LOWER STRESS even than a well-managed rental property?  How’s 12% per year - or more - sound?  I’m Bryan Ellis, and I’ll tell you how to do it RIGHT NOW in Episode 153.

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Hello SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

People, people, people… I’ve been getting a lot of notes lately saying something like… “Bryan… you used to talk a lot about real estate notes as the best asset class, and now all I hear you talking about is rental properties.  Aren’t notes still a good option?”

My friends, not only are high-quality real estate notes a good option, but they remain a MUCH BETTER FOUNDATION for your portfolio than anything else… including rental properties!

For those of you who may be new listeners, a note – also called a mortgage – is just a loan for which real estate is placed as collateral.  So let’s say you have $100,000.  You might choose to lend that to someone in exchange for a certain interest rate.  But in order to make it safe for you to lend, you require that the borrower place a piece of real estate as collateral that you can sell if the borrower fails to make his payments as agreed.  That’s a simple explanation of notes – they’re really just real estate loans.  No more than that.

And usually, when a person wants to invest in notes, what they’re looking to do is to find a note that’s been originated by a lender, and then the investor – that’s somebody like you – would look to buy that note from that lender in order to generate a good yield on their capital.

And do you know what?  That kind of deal DOES happen every day… but, generally speaking, not with individual investors.  Sure, there are individuals who have the connections to pull off good note deals, but that’s pretty rare.

But that doesn’t matter, my friends, because there’s a MUCH BETTER WAY.  And that way is to create your very own notes – with exactly the terms you want – from scratch!

Now my friends, I’ll quickly explain the process to you.  There are a few of you in the audience who are do-it-yourselfers and will take what I give you and run with it… and that’s great!  But for the vast majority of my audience who are true passive investors, you should listen in for a moment as well so you understand the process… and then I’ll tell you how to have it all DONE FOR YOU – totally passively – in just a minute.

So here’s how it works:

The basic idea is that you’ll buy a house, and then you’ll TRANSFORM that house into a paying real estate note.  How?  You’ll sell the house using a strategy called Seller Financing, in which the buyer – rather than going to the bank to get a loan – the buyer will give YOU a down payment, and then they’ll also make payments to you for years to come, just as if you were the bank.  When you do this, you’ve BECOME THE BANK and you’ve transformed your house into a cash-flowing note!

But what kind of house does this work best with?  Well, there are 3 simple financial standards you should look for.  Curiously, the standards are all related to RENTAL RATES.  Why?  What you’ll find is that by targeting RENTERS who want to be buyers with a special message – that message being “you can now OWN a property for what you’re paying in RENT – then you’ll find it quite simple to convert houses into NOTES… and that’s the whole goal.  Thus, all of the standards involve the prevailing market rental rate for the property in question.  We’re going to use the rental rate to BACK IN to what we charge the buyer when they buy the property from us via seller financing.

So standard #1 is Rent To Value, or RTV – just divide the value of the property by the monthly rent.  What you’re looking for is a number at or below 100.

Standard #2 is Rent To Price, or RTP – just divide the actual PRICE you’re paying by the monthly rent.  What you’re looking for is a number that’s no higher than 80, and the lower the better.

Standard #3 is Rent to Recurring Costs, or RTR – just divide the sum total amount that has to be paid each month to cover property taxes, insurance and any servicing fees by the monthly rent amount.  A good standard here is that recurring costs should be, at most, 25-30% of the monthly rent amount.

That’s all a bunch of mathematical gobbledygook at this point, so let’s look at a real deal.

So I’ve got a little house that’s newly renovated.  It’s worth $60,000 and I can buy it for $45,000.  Market rent for this house is $750.

So what I’m going to do is buy it for $45,000, I’m going to sell it for about 10% more than the cash sale price, so I’ll sell it for about $66,000.  I’ll ask for a down payment of about 10% - let’s say $6,000 – and then I’ll finance the rest of it – $60,000 – for the buyer in the form of a note.

But what will the interest rate of that note be?  That’s easy – we let the market tell us.  We already know the property rents for $750, and that we want to market this thing as being available for the same price as rent.  So all we do is take out the monthly cost for things like property taxes, insurance and servicing fees, and what we’re left with is the amount we can collect in principal and interest.

In this case, that number is $612.50 per month.

Then, with the help of my trusty-dusty, handy-dandy financial calculator, I see that if I want to finance the amount of $60,000 and receive payments of $612.50 per month for, say, 20 years, then the face rate of that note will be a whopping 10.83%!

That’s right, folks… you’ll yield 10.83% for 20 years.  And that’s a BEAUTIFUL thing! But is that ACTUALLY right?

No, it’s not.  The truth is even better.  Because while the amount you’ve financed for the buyer is $60,000 – remember that the amount you actually have tied up in the purchase of the property is only $45,000!  So returning to my trusty-dusty, hand-dandy financial calculator, what I learn is that by collecting the same amount of money per month, but by having only $45grand invested rather than 60 – well, your annual yield goes up to an eye-popping 15.6%!

And remember – your capital is secured against the property.  If the buyer defaults – which is statistically improbable on any given deal – then you can sell the property on the open market or even just resell it to another owner financed buyer!  With these deals, the downside is not distressing, and the upside is simply BEAUTIFUL!

So, my friends:  Those of you who have been itching to do a really great real estate note deal yourself… but you’re having trouble finding a good note to buy… I’ve got great news for you!

I’m not introducing the world’s very first turnkey real estate NOTE investing program… and you’re going to love it.  My team will do all the work for you – we’ll find a great property that meets the parameters, perform the marketing to find a seller-financed buyer for you, and we’ll put it all together in a pretty little package so that you have to do virtually nothing other than fund the purchase of the property… and shortly thereafter, you end up with a note that can pay you – and pay you HANDSOMELY – for decades to come!

But we’re doing this as a test only.  I already know the strategy works… what we’re testing is whether it’s worth our time to offer this as a turnkey service.  So I’ll be taking on exactly 5 test clients, and two of those spots are already taken.

Want to know more?  Everything you need to know is in a short webinar at SDIRadio.com/noteinvesting.  Again, that’s SDIRadio.com/noteinvesting.  Go over and check it out.  If you’re looking for low-stress investments with a consistently high yield, you’ll love what you find there.

My friends, invest wisely today… and live well forever!

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