I Buy Paper

I am a paper buyer. I'm not talking about wallpaper, computer paper, toilet paper or recycled paper or the stock market's "paper profits." I buy a special kind of very profitable paper. I buy paper that has mortgage, real estate contract, or land contract written on it. That is how I make money. Anyone can become wealthy doing the same thing. It's a very good living that can create wealth without bounds.

Paper is a financial term for the legal documents committing a loan secured by property. Paper confers on the owner the right to collect the amount of the loan, in payments of principal and interest, at the intervals, and over the period of time, stated in the note. If payments are not made, the loan documents give the holder the right to take the property which secures the loan (foreclose) and keep it, or sell it to get his or her cash back. The property can be anything of value that someone has chosen to lend money on. The only kind of paper I buy is personally held mortgages with real estate as collateral. The collateral for a personally held mortgage or trust deed can be a single family home, an apartment building, commercial property, or even a piece of land. If it's real estate secured, I'm interested in buying it. Being interested in buying does not, of course, mean actually buying. I buy only when I can get paper at a discount that guarantees me a profit. I buy only when the property fits criteria which make the paper a safe investment.

Paper is an excellent way to make money part time or full time, using little of your own money if you don't want to. If you have your own funds, you can choose to use them or not. Buying paper is a remarkable opportunity.

My method of buying paper is exactly the kind of business which creates profits by working a small niche. It takes advantage of a niche in the vast business of buying mortgages.

Mortgages are recorded at the county courthouse, in the office of the County Register of Deeds. It's all there, waiting, the best-kept secret on public record.

When I buy paper, I don't pay the face value of the mortgage note. Buying for less than the face value is called buying at a discount. You may have encountered a term like "discounted mortgages," and wondered what it meant. This is it. If you can't buy at a discount, there's no profit and no reason to buy. Why buy a mortgage at face value to only earn the interest (say 7 to 10%), when getting paper at a discount can increase the yield to 25% and more?

People often ask me how I make money. I say, "I buy paper." Their response is almost always the same. "What?" When I tell them what it is, they almost always look mystified and say, "Why? What makes it a good investment?" When I explain, they get confused, or loose interest. Probably 99% of the people in this country have no idea what it means to buy paper or even that it is possible to do so. There's plenty of paper available for everyone. There's an estimated 400 billion dollars worth of personally held paper out there. The opportunities are endless. I find it fun and exciting. Yeah, it's a bit of a gamble, but the payoff is much better than going to the casino!! And I have friends that have lost a lot of money in the stock market in recent years. But even with the foreclosures that I have had to go through (with an average loss of $10,000.00 each), I have still managed to have the Net Worth on my financial statement increase quarterly. That's better than almost anybody has done in the stock market.

A slow real estate market, present in many areas even during an economic boom, means that many sellers, who have often waited too long for their homes to sell, are far more willing to carry back a mortgage note than they were even a few years ago. These sellers don't really want the note they accepted. They took it only so they could sell their homes. Many would rather have cash, even if it isn't the full value of the note. In very hot real estate markets, lenders may hesitate to loan on what they perceive as inflated values, fearing the values will drop, leaving them holding a mortgage for more than a property is worth. That may make a personally held first or second mortgage the only way a sale can happen. Few people know of or understand the opportunity this creates, so competition for this paper is small. Opportunities for buying discounted paper are not dependent on the economic conditions I've just described. When interest rates are low, people want to buy paper in the expectation that the property owners will refinance the property, thus paying the note off early. If interest rates are high, sellers of property hold paper because it becomes very difficult for the average person to qualify for bank financing. There is always an ample supply of paper to buy, and an ample supply of buyers when you find it.

Buying paper is the best kept secret, not because anyone has hatched some evil plot to keep the knowledge from the public, but because the public doesn't know it exists. It isn't the kind of thing that makes newspaper headlines or attracts the attention of talk show hosts. Public and financial industry employees who work with mortgages every day, even those who buy and sell the loans of major institutions, often don't realize the money that can be made buying and selling personally held mortgages, or where or how to find them. And yet, a great majority of leads for the paper I buy are on public record. Most people assume paper involves lending money, working for a bank, or that you need some advanced degree in high finance to even think of doing such a thing. Working with paper doesn't take any of this. All it takes is some knowledge and the motivation to go out, do some work, and make money.

I've been buying paper for almost 40 years. I know what the mistakes are and how to avoid them. More important, I know how to make money in the paper business. And don't kid yourself, this is a business. You need to plan and run it like one. But, it's not like any business you've ever seen.

Most people think, "Of course he makes it sound easy! He does it every day! But I've never done it!" Yes, for me it's easy. But 40 years ago, I had never done it either. When I started, I didn't have anyone to tell me how to buy paper, or to warn me about the pitfalls and problems I might encounter . I had to learn it all myself, through experience, by trial and error.

As far as my personal life and history is concerned, I was not an exceptional student in High School. I got average grades. I went to college for a couple of years, but again, only average grades. I was not particularly interested in Sociology and History, etc. I must admit, though, that I liked playing with numbers. I worked as a partner with my dad in the fuel business after college. It was great, playing with numbers much of the time. Later, I was in the excavating business for a couple of years. It was okay, but a lot of work for the money, and a lot of overhead. . Eventually, I went into real estate sales. I was not good at that, so I became a Broker, and managed a real estate office. Didn't like that either, but did learn some of the ins and outs of real estate legal documents (not a particularly hard thing to master). I "graduated" to real estate appraiser (now retired from that also). Being affiliated with some of the real estate people in the area, I came to find out that there would be money in personally financed real estate. I started out on a small scale, and found it to be good.

In any case I thought that I would not be satisfied to retire on just $1,600.00 per month.

So I started slow. My first experience with a personal mortgage was a result of buying a run down house, fixing it up, and selling it to an individual with a relatively small down payment. The balance, I took back as a mortgage. I sold the home for more money than I could have got by selling for cash, hence, the discount. Almost all of the paper that I acquire now, are "seasoned" mortgages, purchased from others that have sold with seller financing. Almost everyone that sells with seller financing eventually ends up wanting their cash. Typically, they are glad to get rid of the headache of collecting payments, making sure the mortgagor has adequate insurance, etc. They sell to me at considerably less than what is owed to them, sometimes 10% to 30% less. The amount of the discount depends largely on the length of the contract, the interest rate, the quality of the mortgagor, and also taking into consideration any balloon payments. It can be very complicated to determine what the cash value of a contract should be. I wrote a spreadsheet program that helps to determine the amount of the discount, and how much yield a person can expect to make, based on numerous variables.

The yield goes up at an astronomical rate if the mortgagor pays off the mortgage shortly after an investor acquires it. Mortgagors pay off for various reasons; refinance to get a lower rate, death, divorce, relocation, etc., etc. I have had the experience of buying paper from a Mortgagee, and have offered the Mortgagor 50% of the discount that I received, if they would pay me off. Recently, I got a $7,000.00 discount buying paper, and within a month, I split that with the mortgagor because he agreed to pay me off. We were both happy, each $3,500.00 richer, with almost no work.

Another example of how an investment in paper can snowball. Seven years ago, I bought paper (a $40,000.00 mortgage) on a home. The discounted (cash) price of the contract was $34,000.00. The mortgagors have been paying me $360.00 a month for seven years. Next year (after about another 12 payments) the mortgagors will owe me $34,000.00, the same amount that I paid for it originally. They will have paid me over $30,000.00 over 8 years, and still owe me the full investment amount. If they pay me off....fine. But if they don't pay me off, I will be paid an additional $360.00 per month for an additional 14 years, a total income of nearly $90,000.00. Obviously, you can see by this example, a person needs to have patience.

And so it goes.............