BATTLECALL GUEST EXPERT: I. Luqman Muhammand, Real Estate Investor Cash 4 Cash Flows

Are you aware of just how large the paper market or the seller-financed mortgage market truly is? One out of thirteen homes sold in the U.S. has some kind of seller financing. Further, this market continues to grow at the rate of over $4 billion a year.

Government and industry sources estimate that $335 billion in private paper exists in our country right now! Of that total, nearly $100 billion consists of private residential mortgages.

Just what is private paper or seller financing, anyway? Generally speaking, private paper refers to the notes and security instruments created by private parties.

Private parties are those individuals or investors who are lending from personal assets rather than through large institutional lenders.

Although the majority of private paper assets exist in the form of mortgage notes generated when sellers carry back some or all of their equity in the properties they sell, a great deal of private paper is also created as a result of other types of transactions. Attorneys, for example, have taken promissory notes secured by real estate as payment for legal fees. Swimming pool builders and home improvement contractors use the private paper device to secure payment for their work. Real estate brokers have taken private paper for their commissions. Bail bondsmen often take private paper security for their bail funds. Divorce and probate settlements frequently utilize private paper to facilitate the equitable distribution of assets to the affected parties.

Many folks believe that the growth in the mortgage industry and the low interest rates our economy has enjoyed over the past few years have wiped out the need or inclination for private paper. This is not true. Since 1993, private residential paper assets have grown from $75 billion to approximately $100 billion. That's $4 billion per year in new private paper created over the past six years.

Note Worthy

The incredible growth in the private paper industry has refashioned what was once a small market into a full-blown financial sector in its own right.

What just a few short years ago was a "hidden market" has slowly crept from darkness into light. Networking has become the byword, as industry participants have learned to work closely with one another. Modern technology has also played a significant role, as communication between note professionals has improved. Another key ingredient that is propelling the growth of the note industry is liquidity!

No longer are note buyers playing strictly in their own backyards. A farmer in Bigfield, Indiana dealing with his local note broker can now sell his note to an investor living in Joe, Montana. What's the significance of this? Simply put, the movement of capital, which in turn lubricates the economy.

The average note holder is now holding a high-return, highly securitized instrument, which he can keep or sell with relative ease.

Selling A Partial

Did you know that a note holder can even sell just part of a note and keep the rest? That's known as a partial purchase. This device is fairly unique in the investment world. How many investments allow you to sell a portion of your future revenue for cash right now, while still receiving the other portion of that revenue stream as income?

Investors now have a higher degree of confidence in purchasing paper or playing the paper game. Further, they have an increased opportunity to find enough deals to sustain their portfolios and their investment objectives.

Conversely, sellers enjoy an increased bidding atmosphere that will usually ensure they get the best price available.

The Growth

Private paper assets have grown at the rate of $4 billion per year over the past six years! Where did that growth come from? Your clients!

Chances are you are actively involved with, or at the least somewhat aware of, your clients' financial affairs. Somewhere along the line, you most likely have some input in your clients' decision-making processes. Being aware of the private paper marketplace, and having at least a basic understanding of how it operates, opens up all kinds of possibilities for the creative professional to provide solutions for his clients' problems.

The primary service you offer your clients is counseling or advice. The more you know about the paper game, the better counseling you can provide. The better counseling you provide, the more your clients rely upon your judgment. As this reliance grows, the expansion of your practice is a natural consequence. Credibility fuels prosperity!

The Future

In the months ahead, I will provide you with an updated road map of the paper game to guide you through this hidden market - and demonstrate how you can increase your business by having this knowledge and an understanding of real estate paper.