Finding Cash Flow Notes And Getting 20%+ On Your Investment

High foreclosure rates are a sad fact across much of the country right now. In fact, my home state – Colorado – leads the nation, with one in every 484 homes in foreclosure.

After a boom which encouraged people to take out bigger mortgages than they could afford, a variety of ‘creative’ mortgages that are now catching up with people, and just a plain old slowdown in the housing market, it’s no surprise that 2006 will have the highest foreclosure rate in years.

But no matter how tough foreclosures may be on the banks, they represent a sensational opportunity to investors in Cash Flow Notes.

Cash Flow Notes are simple financial instruments created to carry back financing from the buyer to the seller. If Jack can only get a $200k mortgage from his bank, and wants to buy Jill’s $250k house, she might be prepared to carry the extra financing herself. A Cash Flow Note is generated for that $50k loan. In essence, an old-fashioned I.O.U.

But in foreclosure, those payments to Jill may suddenly stop. Now she has the hassle of getting a lawyer, maybe even selling the debt to a collection agency, or worse still – confronting the occupants, who may be family or friends.

But what if Jill could SELL her note to an institutional investor? After all, it’s secured by property, and notes can easily offer cash-rich investors a 20% return on their money (or more – I regularly achieve returns of 30% on my note deals). Jill gets her money, the investor secures the deal (at a discount), and he or she secures a stable, high-profit investment.

Given that one in every thirteen home sales in the United States involves some kind of carry-back financing, you can immediately see that there is a vast opportunity. In Colorado alone, that figure suggests there are 285 homes in foreclosure that have a note attached to them. In Texas, the number is closer to 1065 homes. Nationwide we’re looking at 30,000+ homes in foreclosure that have some kind of private financing involved. And that doesn’t count the vast number of pre-foreclosure, tax liens or bankruptcies out there.

The big question, of course, is how to find those notes first. That’s where a resource such as foreclosure.com can be invaluable. Checking the site daily is a no-brainer for the savvy investor. Other resources such as bankruptcy court filings can be helpful.

But there is another way that fewer people investigate. Suppose you could find a note holder whose debtor was delinquent? Before the entire world knows about it through a foreclosure, you might be able to persuade that note holder to sell – and get a jump on the market.

Such note holders will be extremely receptive to your offer – for a start, the foreclosure process is somewhat complex and costly. Your offer might preclude the necessity of them foreclosing on a friend or family member. There are many reasons why your offer might be very attractive.