There are more ways to make money with cash flows than Clinton has lawsuits. The obvious profits centers in alternative cash flows are lotteries, structured insurance settlements, sports contracts, mobile home and car paper. But you should keep your eyes open for any type of cash flow that people may want to sell for a lump sum. Even if the certainty of the cash flow is dubious, you could arrange to buy it at such a high yield that you could absorb some anticipated losses.
Consider the following very clever people:
Rick Cardinal buys vacuum cleaner notes. The average note is for about $900. The vacuum cleaner sells for about $1,200. They are financed by the sales person and the subsequent note is sold to NorWest Financial, a large retail lender. Those notes NorWest will not buy are sold to Rick at a 60% yield. While Rick will carefully pick the note he buys, he still cannot collect every dollar. He says his average yield is 40%. He currently has 40 vacuum cleaner notes in his portfolio.
Rick discovered this source at a home show at the El Paso Civic Center. He talked to the sales people for Rainbow Vacuum Cleaners. These high end vacuums use a water filter to keep out household pollutants. By asking the sales people about the financing of the vacuums he was able to develop a very lucrative niche for himself. He works with two dealers and feels he could expand this business when he needs to. Rick learned the note business around 1987 from Barbara Baird of Metropolitan Mortgage. Rick can be reached at (915) 592-7755, 3117 Fierro, El Paso, TX.
Bill Clark buys car repair paper. He saw a need and a cash flow and developed a program to solve the car owner and mechanic’s problem.
A person will take their car in for a $90 a tune-up and find the car needs major repairs. The cost is now $1,500 or more and the car parts are lying all over the mechanic’s garage. The mechanic has a sick car and a customer who cannot afford to repair it.
Bill steps in with his creative paper program. He purchases a sales contract (created by the repair shop) to cover the cost of repairs to the hapless owner’s car. He gets the free and clear title on the car to record his security interest. He makes it clear to all the parties that he is not a lender, he is a note purchaser. His average yield is slightly above 50%, with a collection rate of about 90%.
Mark Newsome buys rental income streams. He has written about this before in NoteWorthy. Mark goes to an upscale apartment building owner and offers to buy the rental income stream from one tenant for one year for a single lump sum payment for a 20% discount. The owner of the apartment has cash to fix up all the units and Mark has a secure rental income stream for a year. No matter what the monthly rental is, the yield is always 43.34%. For example, an apartment might rent for $1,000 per month. Mark would pay $9,600 for the 12 monthly payments. Mark can be reached at (518) 432-6452
Jeffrey Taylor, author of Mr. Landlord newsletter has an improvement on this concept. After purchasing the rental income at discount, he will talk to the renter and allow him or her to make bi -weekly payments, for a slight fee, which coincides with their pay check. Just allowing bi weekly payments will increase the yield by 1.5%. If you add a 1% fee the yield increases by an additional 2%. Jeffrey Taylor can be reached at: (800) 950-2250.
Walt Poser buys notes secured by small businesses. The security is not the real estate, but the good will and assets of the business, both of which are difficult to foreclose on. Walt makes the note safe in several ways. First, he will buy only a part of the business note, so the original owner of the business still has an interest in the note and the business. Should the payor be unable to pay, the old owner can step in with a fair chance of making the business profitable again and continue to pay on the note. He will also assess the skills of the new owner, the credit of the new owner and other proprietary items in underwriting a business note. Business notes are plentiful. Most small business, such as key shops, video stores, and other “mom-and-pop” businesses must be sold with some kind of seller carry back financing. By working with business opportunity brokers you could develop a reliable source of good business notes. Walt Poser will buy some of these notes from you.
Lloyd and Mark Walters wrote: We’ve always liked the ‘rent to own’ concept. In real estate it’s often used in lease/option deals. In some areas it’s a popular way to sell used cars. The best is the ‘rent to own’ appliance business. Why? Well pay attention: Rent-To-Own stores may offer a washing machine for $13.99 per week on an 18 month lease. That’s $1,007 for a washing machine! Check regular store prices. You heart may skip a beat when you see them priced under $400. That’s retail! What does the store pay? The gross profit is at least $700 on an 18 month deal. Yips! Could you do the same without having a store? Sure! There’s not much difference in most appliances. Customers won’t be wanting tail fins or a moon roof. Check the Yellow Pages for a wholesaler. Then, run a classified ad like: “Rent-To-Own washer or dryers. just $13 payments. Call (xxx) xxx-xxxx.” You can keep a couple of sample appliance in your garage (or storage unit) to show those interested. When you have a buyer, go to your wholesaler and get what you need.
Significance: What does this all mean? It means creativity is greatly rewarded in the note business. It means the direction of the note business is unpredictable, it means what you learned about the note business is only a small part of it, it means we must all think creatively. My favorite bumper sticker says: “If you do things in the same old way, you’ll be the same old broke.”
Is some one looking a jewelry paper? carpet paper? animal paper? time share paper? other innovative ideas. Let us know.