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Finance > Real Estate > Using Notes to Purchase Property
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Article rating : 0.00, 0 votes. Author : Dennis Henson
Did you know that by creating a real estate note you may purchase some fantastic deals without using any of your own money? Writing notes is like creating money out of thin air. Governments do it all the time. If you look at a U.S. Dollar you will see that it is simply a note from Uncle Sam stating that he owes you one dollar.
Is creating these notes to use for money--legal?
A note is just an IOU, a promise to pay a specific amount of money. Anyone can write an IOU anytime for anything. But how does this knowledge translate into being able to purchase real estate?
How do you use a note to purchase real estate?
When someone is desperate to sell their home (a motivated seller) they will be willing to listen to just about any creative financing technique that will help them solve their problem. You may offer to pay-off their existing mortgage either by taking it subject to or getting your own first mortgage to cover that amount-then give them a note for the balance of the purchase.
Sounds good but how do you create a note?
The easiest way to create a note is by having your title company or real estate attorney do it for you (the title company is usually less expensive). You will only need to provide them with some basic information.
What
information is needed in order to create a note?
The maker of the note? (The buyer-YOU)
The amount if any that is being paid as consideration or equity? (the cash being paid to the seller?)
The collateral to be pledged as security? (address and legal description of the property)
The amount of the note
The term (when the total payoff is due)
The percent of and type of interest (simple or compound)
The amount of each payment and when these payments are due (may be any amount)
If there is to be a balloon payment due at the end of the term
What assurance does the seller have that I will pay the note?
The seller should have two documents recorded (the title company will do this as part of the closing). A promissory note and a security instrument. The note is the written obligation to pay and the security instrument pledges the collateral. If you are making house payments, your mortgage or deed of trust is your security instrument and the promissory note is your obligation to make the payments.
Sometimes the owner financed note is what's called a second or a "second mortgage".
Another creative note technique is to create a note to finance a property. That note may be sold in advance and the proceeds paid to the property owner as the cash part of the transaction. I will elaborate on this technique in another article.
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