Top 3 Ways To Build Passive Income

In todays email:

• 💬 State of the market: Inventory, debt service and home sales.

• 🙈 Featured Video: Top 3 Ways To Start Building Passive Income

• 💥 Show me the money: Underwater note makes 14%+/year.

• 🥶 Cool Tools: Quick way to search for property taxes due.

State of the Real Estate

• Housing Inventory: This is the count of active single-family and condo/townhome listings for a given market during the specified month (excludes pending listings). The inventory is staying subbornly low and dropped about 45,000 units from Dec 2022 and now at 625,875. Many past years well above 1,000,000.

• Household Debt Service Ratio (DSR): This is the ratio of total required household debt payments to total disposable income. It has increased from its low in Q1 2021 of 8.32 and now at 9.74. The higher the ratio goes the more of a persons income it takes to make their mortgage payment.

• Existing-home sales: This measures the transaction volume of existing single-family homes, condos, and co-ops. This is a seasonally adjusted annual rate which was 4,020,000 in Dec 2022. This is dramatically lower than January 2022 high of 6,490,000. The main reasons are lack of inventory and higher rates.

Featured Video 

By now you have heard the word “passive income” several times and are probably asking yourself what kind of passive income is he referring to?

Well I am not talking about generating passive income through online marketing, e-commerce, blogging, writing books, dividend stocks, affiliate marketing….etc. While all these things are possible and interesting, I think by far the best place to focus your attention when building passive income are mortgage notes, private lending and rental real estate (including syndications).

I explained in this video the reasons why I like each of these asset classes, how the process works and compared the yields, upside potential, how passive and other considerations.

Show Me The Money 

BACKGROUND: In last weeks newsletter we discussed the acquisition of a non-performing note in Oklahoma which netted us $74,707 in 9 months. This was a vacant property where the owners were deceased and we had to foreclose to get clear title and then sold the property as an REO.

This week we will discuss a non-performing note example where the property was occupied and the owners wanted to stay and pay. For me, this is the best situation since I am looking for cash flow and I really don’t want the house back. So let’s dig a little deeper and go through the process and the numbers.

They owed $180,000 on the property and it was worth only $150,000. In other words, they were underwater (hence the picture…lol) or sometimes called upside down. I was able to buy the note for $90,000 or around 60% ITV* (see Chart A below). Since I bought the note at a discount I was able to pass part of the discount onto the homeowner and reduce the principle balance owed by $20,000 (see Chart B below) by offering a loan modification. I also reduced the time to payoff by 50 months and the payment went down as well (see Chart C below).

*ITV = Investment-to-value

SUMMARY: The homeowner was super happy and we now are getting a consistent yield of 14.2% for the NEXT 20+ years secured by real estate! Anyone can get a 10%+ return for a year or two but to get that type of return consistently for 250 months is unprecedented. 

Cool Tools

NETRONLINE is the cool tool of the week. What is NETRONLINE?

NETRONLINE (https://publicrecords.netronline.com). The Public Records Online Directory is a Portal to those Tax Assessors', Treasurers’ and Recorders' offices that have developed web sites for the retrieval of available public records over the Internet. Examples of records that can be accessed include deeds, mortgages, assessment data, tax details, and parcel maps.

Not every county, parish, and municipality has data online. However, many have websites with general information and when neither is available then Netronline provides a phone number.

You simply hover over the state you are working in (example below shows us hovering over the Georgia). Once you pick the state you will then select the county and then it will take you to a screen with links/phone to the county treasurer, assessors, clerk of court, etc. (see the second pic below for Fulton County example).

So now you can get the property tax owed, the tax value, the assessors information, house detail information, GIS mapping and aerials and sometimes recorded documents. Again, not every county has the same level of information and details but this is a FREE and quick resource. If you are buying houses in one state only then you could simply go to your counties website. However, if you are buying notes in multiple states this is a quick way to get some information. I have purchased notes, rentals, REOs in 35+ states to date and I use this resource daily.

Last weeks POP QUIZ was…how many days from the debtors initial filing for bankruptcy does the creditor have to file a Proof Of Claim?

ANSWER: 70 days. Note: It used to be 90 days for many years but changed when the new bankruptcy rules came out in December 1, 2017.

This weeks POP QUIZ: When you buy a house and get a loan from the bank are you the mortgagor or mortgagee?

Check out next weeks newsletter for the complete answer.

We would love to get your feedback and your thoughts! Let us know which topics are of interest or where you need more clarity. You can just respond to this email directly…we like to make it easy 😌 or email [email protected]