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Saturday, March 20, 2010

Are Cash Flow Notes For Real? Can an Entrepreneur Make Money with Them?

Question: I've seen cash flow notes plastered all over late night infomercials. I've also Googled them, and researched them somewhat. But I would interested in what you have to say about them. Can an entrepreneur make money with them?
D.S. Palm Springs CA

Answer Marc Charles:

Hey DS...thanks for your note, and question. I'm glad you're watching late night infomercials for ideas. I'm serious. Almost everyone berates late night infomercials. But I think you can learn a lot about making money and legitimate business opportunities from watching them.


You can make a ton of money with real estate notes.

But the competition is fierce.

What’s more, there’s a right way and a hard way to do this business.

Don’t worry, I’ll explain what I’m talking about.

On top of that, the market is much larger today than it was three or four years ago because of the economy and the collapse of the real estate market.

But let’s get real........

Most of the time, it will be seasoned investors and bankers who are on the inside track for the best real estate notes.

However, I'll show you how to find the best real estate notes (also known as “cash flow notes”), how to list or sell them, and more importantly how to GET PAID.

What the heck is a cash flow note?

Cash flow notes are IOUs, essentially 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 paper (mortgages) and residential mortgages.

But there are cash flow notes available in almost every conceivable real estate investment. And most are secured with a title deed.

But like I said, you can find cash flow notes for everything from accounts payable, structured settlements, royalties, leases, pre-construction, and more.

But I’ll focus on real estate cash flow notes in this week’s issue.

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.

This is 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 then 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.

The process is contingent upon locating note sellers and brokering these notes to willing buyers. And in the real world it takes a lot of time, energy, and money to build a network of qualified cash flow note sellers and buyers.

But the important thing to remember is entrepreneurs are making money in this business.

What’s more, there are established networks of entrepreneurs who are already these deals… they’re called bankers, lawyers, and real estate investors!

Insider Secrets to the Cash Flow Business Revealed!

One of the biggest secrets to the cash flow business is direct marketing.

That’s right! Who would’ve guessed direct marketing is the key?

If you get into this business, understand you’ll need to reach a fair number of qualified cash note sellers. These cash note sellers will typically be 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. Stay with me now… it’s not as expensive as you might think.

It should be fairly obvious but know this… cable and satellite TV advertising is down BIG TIME!

Therefore, cable and satellite TV channels are willing to make 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.

Check out National Cable Communications – they specialize in “spot” commercials.

You can even setup spot TV commercials with Google TVAds.

And don’t worry, you won’t have to pay actors or film crews to get your commercial done. There are several companies that offer pre-made spot TV commercial packages, including Spot Runner, Inc. I've heard Spot Runner is having trouble financially. But there will be others in the space...just Google it.

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 any. SpotRunner enables you to eliminate a large portion of this expense.

But some marketers prefer to produce their own commercials – and you can do that too.

The objective of any marketing is to attract qualified note sellers.

But you could also run commercials (in a different market) to attract note buyers. You could do these simultaneously as well.

The objective is to compile a list of qualified note sellers… and/or a list of qualified note buyers.

The next step is to simply match them up!

Granted, there is some legwork involved in this business. Plus, it’s not entirely free of red tape or paperwork.

But this business is fairly simple if you have qualified buyers and sellers! Your compensation would be 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. 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 good source of leads in this business. And if you haven’t noticed, newspapers are dropping like flies! Like I said, they want and need your business in order to survive… and most of them will cut deals on pricing.

It’s also important to have a simple website which attracts note sellers. Just Google “cash notes” and you’ll see hundreds of examples of simple websites in this niche.

You could have a separate website or landing page which attracts note buyers too.

I recommend two separate websites or landing pages is because note sellers and note buyers are two VERY DISTINCT markets and mindsets.

You see, note sellers are often in need of immediate cash (for whatever reason).

Note buyers on other hand often have a longer-term objective. Granted, note buyers are often looking to sell notes as quickly as possible. But most of the time not buyers are not in desperate need of immediate cash.

When you’re marketing to note sellers you’ll be addressing the fear, uncertainty, desperation, and other survival instincts.

But when you’re marketing to note buyers you’ll be addressing different emotions, like an excitement for seizing opportunities.

But whatever approach you use, it’s important to capture your prospect’s e-mail address and ideally an address and phone number.

There are a lot of ways to market this business and capture qualified leads. But the objective is the same: to find viable, qualified sellers and match them with qualified buyers.

There are a ton of websites which enable you to buy, sell, and broker cash flow notes too.

Here are three highly recommended websites:

Cash Flow Forum

The Cash Flow Lounge



I also want to give a quick plug for Tyler “Ty” Hicks and International Wealth Success too.

Ty publishes an old world print newsletter called International Wealth Success. But believe me, it is anything but “old world”. It may be a traditional print newsletter, but it’s definitely cutting edge.

Tyler has written more than 30 books on real estate, business, funding ideas and more. I highly recommend his products.

Tyler Hicks understands the real estate note s better than most people.

Here’s a link to his website: International Wealth Success.

New Cash Flow Niche: How to Make 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 get quick access to funds, I found a new “niche” business opportunity which might be a nice side business for you.

A good friend exposed this business to me over lunch the other day… and I sat at the table amazed at what I heard.

Here’s the lowdown on this baby…

Have you heard the term “bad paper” before?

It’s pretty 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 payor is in default if they fail to pay in accordance with the agreement - that’s why it’s “bad”.

It’s pretty obvious there’s no shortage of “bad paper” and “toxic assets” in the market today!

There’s another term which you’re probably familiar - it’s called a “mechanic lien” or “contractor’s lien”. These documents are filed at the local recorder’s office, courthouse (or 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 plunging to new lows, there’s a boatload of BAD paper.

Here’s how my friend makes money from bad paper:

1. Walk down to your local recorder’s office and make a list of mechanics’ liens. (Don’t worry - its public information.) Some recorder’s offices make the information available online but they are typically slow to upload new information.

2. Compile 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).

3. Now send the contractor an unsigned check (window envelopes are the best) for HALF of the amount of the lien. (In our example, the check would be for $750.) You might want to include the words “I’ll send you this check today” or something to that effect. In my friend’s experience most contractors accept the offer. After all, half of the money right now is better than none of it!

4. Contact the homeowner and inform him or her of the seriousness of the lien. You should also mention you are entitled by law to 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. The total amount the homeowner owes is $2,250 (the $1,500 lien plus the $750 collection fee).

5. You then present an offer to the homeowner to settle the lien for HALF of the amount due - which in this case would be $1,125. Your letter should be useful and accommodating – there’s no need to threaten a lawsuit.

Help the homeowner or business owner understand a lawsuit will be filed if the lien is not satisfied. You can also 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.

Note: This is a simplified example. Most contractors’ liens are considerably larger than $1,500.

To Sum Up How This Business Works

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. If you search this term on Google, you’ll find more information on the topic than you could possibly digest.

Here’s the deal 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!


Marc Charles
Your Resourceful Editor

Additional Resources:

CRE Online

eNote World

The Note Network

The Paper Source (20 years in business)

DMO Direct Funding

The Note Center

Real Estate ABC

Monday, March 15, 2010

How to Tap Into a Legitmate $47 Trillion 24-Hour Market with Ease

Here’s the deal……

The Treasury bond – or T-bond – futures market is a global cash monster with a market value of more than $47 trillion!

There are ways for a start up entrepreneur….heck even a seasoned entrepreneur can make money in this market
I know what you’re thinking: “Yeah..that sounds great Marc, but what about someone with limited cash and smarts”!
Listen…… I started trading T-bond futures as a newlywed, when my bank account was so small I was actually charged a minimum balance fee each month. Not having much cash didn’t stop me.

And in the “smarts” department I wasn’t captivating the scholarship boards either!

I was an average student in school.

However, I developed a passion to learn as an entrepreneur, and that made all the difference.

I learned about the T-bond market from a successful entrepreneur, the same way you’re going to learn from me.
My friend showed me how to trade without having to move to Chicago or New York (where two major exchanges are physically located).

On top of that, he showed me how to limit my downside risk by using a strategy professional traders use.
I’ll show you the same technique in today’s post.

I’m not an idiot….

I know there are a lot of seasoned, street smart T-bond traders with very, very deep pockets ...

These professional traders love it when “sheep” (new or super small speculators) enter the market.

But the T Bond market is a fairly level playing field. You have the same opportunities to make a living in this business as they do.

There are ways to make money and trade this market if you have limited resources too.

Granted, a much easier way to trade T Bond futures, and with much less risk, is with exchange traded funds (ETFs – Google it and you’ll find a ton of them)

But there are contracts specifically designed for smaller speculators called “mini” contracts. These were not available when I started trading.

But in order to walk into a $47 trillion market and remove money from the table, you’ll need to understand how the game is played. And you can’t learn everything about it in 15 minutes.

Let me repeat….. you can’t learn everything about it in 15 minutes! It took me about 24 months, and 5 or 6 hours a day to gain a basic understanding of the futures market.

You’ll need to understand how the game is played by successful professional traders who consistently remove profits from the market.

When you open a trading account with a commodity brokerage, you’ll see a lot of “fine print” in the application.
But it’s the same amount of fine print you would see when you open a bank account or buy a piece of property.
Don’t let the fine print discourage you from starting this business and making money!

Don’t kid yourself. There’s a risk of losing money in this business ... and I’m not going to pull any punches. But I’m here to tell you ... this business has less risk than most businesses.

That’s right.

I’m writing this week’s post from our winter home outside of Orlando.

On the front page of the Orlando Sentinel this morning, there was a story about a man from Poland who’d purchased a motel near Walt Disney World.

This gentleman purchased the motel for close to one million dollars. He’s owned it for about a year – and the business was (in his words) “breaking even.”

Last Friday, he was robbed at gunpoint by a 20 -year-old kid with a 357 magnum handgun. If you’ve ever looked into the barrel of a 357 magnum, you know how terrified the motel owner must have been.

Anyway, the motel owner was still shaking a week later – and so he decided to build a bullet proof encasement around his check-in counter for protection in the future.

That is my definition of a HIGH RISK business opportunity.

Things like this are not going to happen when you’re trading T -bonds.

Granted, there could be some stress and fatigue when you trade in a market as large as this – unless you’re superman or superwoman with no emotional connection to money . But, hey, at least you won’t be investing a million dollars into a venture that might break even ... and be scarred for your life after staring down the barrel of a 357 magnum!

As I said, there is a financial risk trading T-bonds.

But I’ll show you what the pros do to limit risk, and how some of them manage their profits too.

The bond market – also known as the debt, credit, or fixed income market – is a financial market where participants buy and sell debt securities. The size of the international bond market is an estimated $47 trillion+ .

What the Heck Are T- Bond Futures, and How Do You Trade Them?

A futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying asset at a certain date in the future at a pre-set price.

The buy or sell date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The settlement price normally converges toward the futures price on the delivery date.

Stay with me ...

A futures contract gives the holder the obligation to buy or sell an asset like corn, gold, currencies, or, in this case, Treasury bonds.

Both parties of a “ futures contract” must fulfill the contract on the settlement date. The seller delivers the asset to the buyer – or, if it is a cash-settled future like T- bonds, cash is transferred from the futures trader who sustained the loss to the one who made the profit.

It’s that simple.

To exit the commitment prior to the settlement date, the holder of a futures position has to offset his position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.

Futures contracts – usually just called futures – are traded electronically on almost every financial exchange in the world with a system called GLOBEX.

The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, etc.
You’ll find current futures settlement prices in just about every national newspaper that has a finance section and on any viable financial website.

An Insider Trading Secret

Amateur traders in practically every financial market usually become intoxicated after a large winning trade. What’s more, they often become arrogant and feel bulletproof. (Believe me, I’ve been there and done that!)
As a result, they don't know how or when to stop and take their profits .

But seasoned pros approach the market with a calm, deliberate assurance. On top of that, the most successful traders have learned that the markets are predictable ( to a degree). Every market tends to move in cycles, trends, and “ waves.”

The insider trading secret that many T-bond traders use is pretty simple to understand. The idea is to leverage your positions through a series of four trades. Then you remove your profits and start over again ... small.

A Hypothetical T- Bond Trade

Okay, now let's do a hypothetical trade using this insider trading secret.

I’ll base these trades on 2007 data.

If you can picture an inverted (upside-down) pyramid in your mind, you’ll have an idea of what this trading approach is all about.

Let’s say that you believe T-bond futures are going to rise dramatically because of tension in the Middle East, massive mortgage defaults, or some other reason. So you buy one June 07 T-bond futures contract “ at the market” (the current market price). This is the first of four series of trades.

Your assumption proves correct – and the June 07 T-bond futures contract takes off.

The next step is to sell one June 07 T-bond contract “ at the market” – and when that order is filled, you buy two June 07 T-bond contracts. This is the second trade in a series of four.

Okay, the T-bond market continues higher, and now you sell the two June 07 T-bond f utures contracts at the market.

When that order is filled, you purchase three June 07 T-bond futures contracts at the market. This is the third trade in a series of four trades.

Do you see the pattern here? On paper, it’ll look like an inverted pyramid.

Each time you increase the number of contracts that you buy or sell, your profit or loss will increase exponentially as well.

In this hypothetical trade, we have so far completed three trades in our four -trade series.

Now we're going to sell all three June 07 T-bond futures contracts at the market. When that order is filled, we’ ll buy four June 07 T-bond futures contracts at the market.

In the real world, markets do not go straight up or straight down indefinitely. But for this hypothetical example, let's say the June 07 T-bond futures price continues to surge.

So, finally, we’ll sell all four June 07 T-bond futures contracts at the market – completing a series of four trades.
Now we're going to remove most of our profits from the market – whether it’ s $5,000, $10,000, $20,000, or whatever – and put that money into a separate account.

Then we're going to do another series of four trades. But each time, we're going to start over again small. And that’ s an important thing to remember.

Most amateur traders “ let it ride” – like they’ re high rollers in Las Vegas. (And 95% of the people who gamble in Las Vegas lose – and most of them lose a lot more than they’ re willing to admit to.)

But we're approaching T-bond futures trading like a professional. A professional trader leaves the table with some money in his pocket – whereas amateurs usually leave shell-shocked and broke.

The insider secret and trading strategy that I’ve outlined today has probably produced more millionaires than any other system.

And keep in mind that we were using minimal trading positions in our example.

Top traders use this insider technique by trading hundreds of contracts in each four-trade series before they remove all their profits ... and start over again small.

That’s exactly how to make money by trading T-bonds like the big boys .

This strategy also enables you to limit your risk, because you won’t be “pyramiding” your positions indefinitely. You’ll have a very specific way to limit your open positions .

T rading T-bond futures won’t be an ideal business for every entrepreneur. (For one thing, some trading capital is required .)

And, make no mistake about it, there’s a lot more to understanding this market and business than what I’ve shared with you today. That’s why I’ve included a bunch of additional resources for you at the end of this issue.

But you can make money – a lot of money – whether T-bond prices go up or down. It’s definitely worth looking into.

Quick Start Insight
The first thing to do is to check out a top financial website or pick up a national business newspaper like The Wall Street Journal or The New York Times. Check out the financial markets section – and, specifically, the T-bond futures quotes.

Start paper trading! That’s right. This is one of the few businesses that enable you to test your skills before you invest a nickel. Just for fun, imagine that you have $50,000 in your trading account. Then keep track of your positions to see if you’re making a profit.

After you’ve paper traded for a month or two you’ll begin to understand how people make money in this business.
When you feel you’re ready to start trading for real, simply open a trading account at any of the brokerages listed below or search the Internet for reputable firms.

I hope that helps.


Marc Charles

Recommended Books
Market Wizards: Interviews With Top Traders,
by Jack Schwager
The New Market Wizards,
by Jack Schwager
Trade Your Way to Financial Freedom,
by Van K. Tharp
Reminiscences of a Stock Operator,
by Edwin Lefevre
Agriculture Options,
by George Angell
Winning in the Futures Markets,
by George Angell
Elliott Wave Principle,
by Robert Prechter Jr.
Commodity Trading Manual,
by the Chicago Board of Trade
All About Futures,
by Russell Wasendorf Sr.
Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market,
by Jim Rogers
Escape to the Futures,
by Leo Melamed