Jack Sternberg – the man who brings us The Noteworthy Newsletter – has been kind enough to rip back the veil shrouding the note business, helping Mogul readers get a full-on immersion into one of the hottest, least-known profit centers in real estate today.
During the last few months, Jack has told us about a variety of his favorite creative dealmaking strategies (each with its own creative name), including:
In today’s main event, Jack introduces a creative process he likes to call “The FSBO Paper Shuffle.”
If you need a refresher course on any of Jack’s previously-discussed strategies, then this is the perfect time to pause and revisit his last few lessons. And if you share our fascination with clever tricks-of-the-trade, then today’s lesson will be perfect for you!
The FSBO Paper Shuffle
Jack: The FSBO Paper Shuffle is all about flipping a note, rather than flipping a property. And you get to work with a motivated FSBO seller.
Personally, I’ve done a lot of these deals myself. Here’s how it works:
You go to a FSBO seller, and you essentially teach them how to take back a note. Specifically, you confess to them that you’re not interested in buying their house, but tell them that you are interested in a note from them. Tell the FSBO seller that, if they’ll create a note (by finding a decent buyer), then you’ll purchase the note from them – once their buyer has made three monthly payments.
Or, as a twist, you can have a business partner buy the note. Of course, your business partner is the person to whom you will flip the note – perhaps an institutional buyer, or even me! Personally, I’ll be happy to look at any deal your Moguls may have, and I’ll either buy it myself or I’ll know somebody else who would buy it.
In any case, you go to the motivated FSBO sellers who can’t sell their house, and you basically teach them how to create a note, and they’ll create the note for you. Of course, when I say “they” will create a note, I don’t really mean the FSBO seller himself – but you will work with the FSBO seller in order to facilitate the creation of this note. You will provide the FSBO seller with note-related documentation, and you will provide them with the assistance to know “Which one of these buyers should they take?”
Then, you may choose to keep the entire note for yourself, or you can sell the entire note, or you can “sell the head and keep the tail”, or you can flip the note. At that point, it’s up to you. There are many things you can do with the note – including several of the strategies we’ve discussed in previous lessons.
It’s extremely lucrative, and there’s no risk – because the seller already owns the house. I mean, you’re not buying an actual house with this strategy. Instead, you’re simply telling the FSBO seller that you’ll pay a certain amount of money for a note, if they will work with you to create the note itself.
This strategy requires you to have some knowledge about how much you’ll offer. But, essentially, every single deal that has a FSBO sign in front of it represents a motivated seller – and they’ll be willing to listen to this sort of thing.
JP: Okay. So, let me unpack this a little bit…
Unlike The Paper Wrapper, you’re not creating one note to buy and another note to sell before “wrapping” the two. Instead, you’re talking about dealing with just one single note. Now, why would somebody choose to do this FSBO Paper Shuffle, rather than The Paper Wrapper?
Jack: Well, with this strategy, you don’t need to buy the house – and you don’t even need to find a buyer. Just let the FSBO seller find the buyer, which is what they want to do. Heck, you can work one hundred of these FSBO deals simultaneously, without ever having to find a buyer, because you let them [the FSBO sellers] find their own buyers.
All you’re interested in is the paper; you’re not interested in the house. You don’t want to buy the house; you just want to buy the paper they create.
JP: You know, I hadn’t thought about that before – but you’re right. There are a lot of FSBO’s out there, and every motivated FSBO represents a potential client, because they feel like they don’t have many options, and they are highly motivated to sell the house. With this strategy, you simply present the FSBO seller with an option, saying:
“Hey, you can continue trying to sell this house if you want, but if you want to pursue a quick deal that is ‘owner-financed’, then I’ll be happy to introduce you to my attorney. My attorney will draft up the paperwork for a note, making it really easy. Then you finance the house, and once they’ve paid for three months, I’ll buy the paper from you. Here’s how much I’ll pay you.”
That way, you’ve essentially positioned yourself as an option for the FSBO seller’s potential consideration. Right?
Jack: Right.
JP: And some of them will pursue you as an option. Of course, many of them won’t – but some of them will.
Jack: And nine out of ten of them will end up listing with a Realtor – but then you can just move on to the Realtor.
In my personal experience, I have placed ads in the FSBO magazine, essentially saying “I buy owner-financed paper” and “I provide private mortgage money”. Then I call every one of those ads listed therein, in order to have the following conversation:
“Have you had any bites on your house? Would you like to know a great way you can sell your house a little faster? I’m not a real estate agent, and I’m not license, and I’m not trying to buy your house… But I’d like to show you how you can sell your house faster than anybody else – namely if you carry back financing.”
And if they say they’re not interested in carrying back financing, because they want cash, I say:
“That’s perfectly fine. In fact, I have a facility to sell that paper. I buy paper. That way, you can get your cash – as long as it’s done in a certain fashion. Can I come out and see you?”
At that point, you know, the proverbial ball is in the FSBO seller’s court. They may continue trying to sell their house. And it may end up in the hands of a Realtor, at which point the Realtor will want to know about it – which is why I shifted from FSBOs to Realtors years ago.
JP: How do you tell the Realtor their commission will be paid?
Jack: There’s cash on the table. Their commission will absolutely be paid.
JP: Who pays the commission in this case? The seller?
Jack: Yes, the seller. The seller always pays the commission, and it will be deducted from the seller’s proceeds from selling the note.
JP: So the Realtor gets his commission after the note has seasoned for three months?
Jack: Correct. And they’re typically waiting three months anyways – or longer – just to do a regular deal.
JP: Okay. That makes sense…
Man, this is truly a great tactic! And, going back to my earlier question about “Why do The FSBO Paper Shuffle rather than The Paper Wrapper?” – it’s because this has much lower risk.
Jack: Absolutely! There’s no risk at all!
JP: Yeah, because you’re not responsible for the house at any point!
Jack: You’re not making any promises or anything. You’re simply telling them, “Here’s another option for selling your house quickly.”
Contact & Confess – Contact an FSBO seller and confess to them that you’re not interested in buying their house.
Advertise – Tell the FSBO seller that you are interested in buying a note from them.
Equip – Equip the motivated FSBO seller throughout the note creation process.
Enjoy – Enjoy lucrative dealmaking with minimal risk.