Many “old-timers” will recall the year 1979 when interest on real estate loans soared higher and higher, then finally skyrocketed exponentially almost overnight to over 20%. Jimmy Carter was President at the time and in late October of that year the Stock Market Crashed. Real Estate Brokers, including myself, lost every single escrow as buyers could no longer qualify for the high-interest loan. Agents fled the market (including from our office) like mice from a sinking ship in search of a “real job”.
Tom and I were blindsided by success, riding the crest of the Real Estate boom of the early and mid-’70s. We simply didn’t recognize the warning signs evident to those more seasoned and savvy in the Industry. What we did know and remember though are the lessons learned as children born during the financial devastation that gripped our Country during the Great Depression. We learned that “Great Opportunity often swings on the hinges of Adversity” and that “During Tough Times the Tough Get Going”.
Experienced Real Estate Brokers hit the Seminar Trail to earn a living, and that’s when we learned how to use Owner Financing, Non-traditional Financing, Exchanging, both creative and 1031 tax-deferred, Developing, Joint Venturing, forming limited partnerships, syndications, mortgage pools, options, and other non-traditional types of structuring and financing of a real estate transaction.
So what’s the point here? Are we predicting another Real Estate bust? No, but I am smart enough and so are you to know that there is a “boom and a bust’ to every market. Whether it is Real Estate, Stocks, Bonds, Commodities, Mutual Funds, Securities, Banking (remember the RTC), or any other Financial Market. It doesn’t take rocket science to understand that when interest rates are low, private financing and seller financing are not prevalent. Why not know the market and innovate and diversify.
Because the entrepreneurial skills learned and developed over my career have resulted in the accumulation of a significant real estate and note portfolio, we believe we can present ideas in our “One Day Workshop” that could prove to be beneficial for those now involved in the cash flow industry in the diversification of their investment portfolio. There will be a need for Real Estate if people need a place to live, work and recreate. Just as sure as interest rates go down, they will go up again and when they do, the market will engorge once again with seller carry back firsts and second trust deeds.
The very “nature of real estate” as a leveraged investment requires a promissory note. Therefore, the unity of Real Estate and Notes cannot be extricated. We have been amazed at how many cash flow “brokers” are not familiar with the plethora of methods and strategies used to acquire real estate. Knowing if the note was created as a downstroke to purchase property, originated as a new loan, part of a private refinance or a seller carry-back, or possibly created and traded to balance equities in an exchange. All of these things affect the value of the note – up or down. The valuing of a note involves much more than just “calculating power”.
How about the risk involved in purchasing or brokering a note. Knowledge of how a note was created affects “risk” and having this knowledge is powerful as you go through the “due diligence” process. What can go wrong, what can go right, how to minimize my risk, and does it influence the price I am willing to pay?
We hope to pass on our experience and knowledge by familiarizing you with such strategies as optioning property with consideration other than cash, how to create notes to use as a downstroke on more real property, how to offset negative cash flowing property with notes. Perhaps, we will have to time to give you pointers on joint ventures with talented partners and investor partners. How developers use notes through non-traditional financing then develop cash flow to keep their projects going through the discount process is always interesting as well.
No way we can cram decades of Real Estate Entrepreneurial skills in a one-day session, but perhaps you can expand your knowledge and broaden your base as we share some of the more unique transactions. We once traded our “hay burning” mare for a note, then added a small amount of cash to the note. To the mix, we added a little fix-up talent and requested the seller carry back financing. With these ingredients, we were able to purchase a small mobile home which we sold on a wrap to develop much-needed monthly cash flow.
Once you develop and diversify an Investment Portfolio with Leases, Options, Real Estate as well as Notes, and other cash flows, it’s time to utilize all the tools available and apply them in order to protect and enhance and build your wealth tax-free. One of these tools is the use of Self Directed tax-free IRA Account. Tom Anderson, President of Pensco will be wrapping up the Workshop by titillating your interest in this vehicle with a presentation of how you can benefit by placing investments such as Notes, Options, Real Estate, Leases, and so forth safely into you’re your retirement account.
This article was modified from an article originally written by Roberta Standen and posted to this site on 2002/08/24.