You have undoubtedly seen the word “Cash Flow” in the news lately. Maybe you’ve seen someone on the Internet or late night television talking about how you can make millions in the Cash Flow business. That sounds great but what are they really talking about – what is this cash flow business? In order to learn about this exciting business we must first understand the underlying conditions that allow the cash flow business to exist in the first place.
When an individual is interested in buying a piece of property, they typically need to borrow money from a bank or lending institution. Once financing is secured it is simple to purchase the property. What happens, however, if the purchaser discovers that they can’t get financing? What if their credit score doesn’t allow them to get a loan from a financial institution? There are even stories of people with good credit that got the loan approved but the lender backed out before the closing date on the property! Now what!?
This is where the cash flow business comes into play. It starts with something called seller carry back financing. In this scenario the seller of a property chooses to loan money to the buyer the same way a bank would. Therefore the buyer of the property strikes up a loan agreement with the seller of the property, and the buyer sends payments to the seller (instead of a bank). The “cash flow” is the payment coming monthly to the property seller.
I can hear the question in your mind – “Why on earth would anyone decide to carry payments on a property they sold?” They could be backed up against the wall and need to sell the property fast due to a pending move. Maybe a buyer shows up at their door with a really large down payment ready to go but can’t get traditional financing. That’s hard for the seller to turn down! Another reason could be that the buyer was able to qualify at a bank for most of the price of the home but can’t get that last little bit of financing to make it happen. That means the seller would have to carry a second position note for a smaller amount to make the property sale happen.
When someone sells a home and carries the payments, that person can dictate the interest rate, the down payment requirements and the terms on the loan. (Of course, legal advice from a qualified attorney is an absolute necessity to set up a loan on a property so that all party’s interests are looked after.) A bank might give a qualified person a rate of 6% with a thirty year term while the seller carrying the payments might be able to get a twenty year term at 9% or even higher! When was the last time you saw an investment return like that?
Now, along with benefits, there can be risks involved with carrying payments. If the home buyer could not qualify for a loan at a bank, what does that say about their ability to pay? The seller might negotiate and get exactly what they wanted for an interest rate, but what if the buyer defaults? Now what? By requiring a down payment, the seller can help to protect themselves in a foreclosure situation. What about collecting the payments on a monthly basis? What if the payor needs to be constantly reminded to send in their payment each month? That can take a lot of time and energy. As you can see, there are a lot of factors involved that one needs to know before carrying payments.
Now that we have a good overview of what the basics are, what exactly is the cash flow business?
Of course, one part is the business of collecting payments as a note holder. Another part is that the person getting the payments can also choose to sell them for a lump sum of cash. Let’s take a look at an example. Let’s say that a person sold their property and has been collecting payments for thirty-two months on a thirty year loan (which is three hundred and sixty payments). That means there are three hundred and twenty-eight payments left on the term of the loan. The note holder could choose to sell those remaining payments to a buyer. This means they would be free of the burden of collecting payments and get a lump sum of cash in return. There are several factors that are considered when a buyer looks at purchasing the payments, but the fact remains that a note holder can get a significant amount of cash for the payments left on the loan.
So the cash flow business really comes down to the simple fact that the bank is NOT the only one that can loan money to help purchase property. Regular folk have been doing it for centuries and will probably continue to do so for a long time to come.
Over the last five years I have sold a lot of real estate in many different markets nationwide. In 2003, droves of investors came into the Las Vegas market and purchased single family homes and condos. In 2004, the scene repeated itself in the Phoenix market. In 2005, towns like Albuquerque and Austin saw investors moving in to snatch up large quantities of new construction homes. Finally, in 2006, the Carolinas became hot and certain areas on the Gulf Coast enjoyed profitable buying conditions.
I was on the move throughout this time period, visiting all of these markets and helping my investors find deals there. All the while, I was sitting on the sidelines at home. After 2003, home prices in the Las Vegas valley became too high to cash flow and purchasing here no longer made sense to investors. Of course, that all began to change in the summer of 2008 as the real estate bubble burst abruptly and prices began free-falling throughout much of the West. As home prices plummeted, Las Vegas began to make sense again for investors because the point of cash flow was once again reached. The “point of cash flow” is a simple equation in which the amount of money an investor can make from renting a home exceeds his/her costs of ownership. These costs of ownership include the mortgage, taxes, insurance, repairs, and property management. With a 20% down payment (or in many cases less), positive cash flow can now be achieved in the Las Vegas market for the first time in several years. This is due primarily to the rock bottom prices of the foreclosures that have been flooding the market. Not only has Las Vegas lead the nation in foreclosures for well over a year, but the amount of foreclosures coming on the market now are near triple the amount from just a year ago. Currently, in the Las Vegas valley, nearly one home in 40 is in some stage of the foreclosure process. The median home price has come down approximately $10,000 per month, every month for the last year and a half from a high of near $300,000 to a new median price of only $140,000. These drastic price reductions have created a new buying boom.
Local newspaper articles and analysts talk about a 30% declines in home values here in Las Vegas. But as a full time investor myself and a licensed Realtor, I can tell you the reality is that we are seeing prices that are being discounted 50-70% off of where they were just two years ago. Many of my deals over the last couple of months have been coming in at well below 50% of older, higher values from 2006. I recently sold a one bedroom condo at $31,000 that sold for $148,000 two years ago. That is nearly 20 cents on the dollar! Three bedroom homes, only two years old, that sold new as high as $300,000 are now priced under $120,000. I recently closed on a three bedroom, 1300 square foot home for $75,000. This same home sold for $244,000 just three years ago. Deals like these are typical of what I have been getting for my investors.
These incredible prices open the door for virtually anybody to step back into the Las Vegas market and begin buying once again. Utilizing the government’s Housing Recovery Foreclosure Bill, 1st time buyers have a $8000 tax credit to take advantage of and Baby Boomers and retirees looking to relocate to a warmer weather destination do not have to head south of the border as the Southwest has become affordable once again. The vacation capital of the world now makes sense for second home and vacation home buyers, and, of course, investors are delighted to be able to cash flow on their investments in Las Vegas once again. All of these groups will also benefit from price appreciation over the next several years as the market continues its recovery.
The only bad news, as we all know, is that lending guidelines have tightened up considerably over the last year. But, to offset this, prices are ½ of where they were two years ago. If you have a good job, and good credit, it is a great time to be buying a home. Interest rates are at historic lows and now is a great time to lock in a good rate on a 30 year fully amortized note, rates literally have no place to go but up. Current reports show that nearly 85% of closings in this market are being financed through a lender. So it is clearly still possible to get a loan. However, of the nearly 50 deals I have closed this year, only five of them were financed. Nearly 90% of my deals have been all cash. Not only am I getting more deals accepted, but I am getting them at or near list price in most cases and getting them pushed through rapidly. I just had a lender for a bank owned property countact me stating that they were willing to accept our lower than list price offer as long as we could close in 10 days with all cash (as we had stated). They had two other offers on the table for more money but banks do not want to fool around with financing either. They want to take the sure cash sale even if it is at a huge discount. This just goes to show that even though financing is available, cash is still king right now in this market.
June and July of 2009 have seen record sales in Las Vegas with 4702 and 4602 closes in each of the last two months. After 18 months of declines we have seen 3 months of holding steady on pricing. Investors have sensed the bottom has been reached and are coming in droves to pick up homes and condos at the bottom of the market. So, folks, if you have been able to save some money, or if you still have a line of credit open, I suggest you come back into the Las Vegas market and start looking around for some real bargains. The banks are ready to deal and the timing to buy a great foreclosure is as good as it gets.
Russ Dalbey`s Winning The Cash Flow Business-How To Make Money With Cash Flow Notes
Russ Dalbey`s Winning The Cash Flow course teaches you to find properties that find privately held mortgage notes, negotiate a price for it and then sell the new note to a new buyer to turn a profit. What alot of people may not know this is not an easy task to accomplish. All home businesses involve learning and putting to use the skills you can now utilize. Russ Dalbey’s Winning The Cash Flow system is most commonly seen with banks when they sell of a mortgage to another lender.
The cost of the basic Winning The Cash Flow Business as seen on television contains numerous free bonuses which can range anywhere between $100 and $200. We all know there is always an upsell involved which is seen in this system.
It starts by your coaching costs which range in the $6,000 figure. Many people I have spoken to were encouraged to charge this to your credit card so Russ Dalbey will be ensured to collect every penny from you.
Russ Dalbey has 3 step system that has proven to work and has proven to fail. Your mentoring is done by college student who themselves learn the course as they try and teach you along the way. Winning The Cash Flow business is very tough to comprehend and therefore involve more of your time and money. Not everyone can come to the table with hundreds and thousands of dollars to keep spending to improve your sales.
The point of a home business is to create a good income using tools you learn each and everyday. Personally I feel the personal coaching for Winning The Cash Flow is a great, but for those of us who are not as financially set this leads to more of debt before you start to turn a profit.