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The Future - Gloom or Prosperity?

by Lonnie Scruggs   

Well, we're now into 2000, the world didn't fall apart, the lights are still on, my mail carrier is still delivering checks, and my bank is still cashing them. And regardless what all the doom and gloom and negative minded people say, I'm convinced that 2000 is going to be a great year.

I say that because I intend to do whatever it takes to make it a great year. I've learned that when you make something happen, it happens for you. When you just sit back and wait for something to happen, it happens for somebody else. And folks that just wait to see what happens, just get old.

We're now living in the most prosperous and opportunistic times in history, yet there are more poor people than ever. How can that be? With so many excellent money-making opportunities all around us, why is there only a small percentage of people that ever reach financial independence?

According to a government report, only 2% of tax payers earn over $100,000 per year. And the average yearly earnings for workers is approximately $27,000.

Attitude is everything

I had lunch with several investor friends recently, and it was interesting to hear the different opinions of what the coming year would be like. Some thought we were facing a tough year, that the economy had been too good, for too long, and was long over-due for a crash.

Others felt we would continue to enjoy prosperity in 2000 because of all the money making opportunities available. So it was a toss up, some predicting good times, and some predicting bad times. I was mainly content to just sit and listen to what was being said and hearing the different opinions being discussed. But after awhile, someone asked me what I thought 2000 would be like.

My answer was, "I think 2000 will be just about like any other year--it will be a great year for some and a terrible year for others, same as always. Some people will look at an opportunity and see a problem. Others will look at a problem and see an opportunity. So whatever you're looking for, is probably what you will see. Whatever you believe, that's probably what will happen.

So it all depends on how your mind is programmed, how your mind, not your eyes, sees things. And if you have the knowledge and ability to recognize and take advantage of an opportunity when it pops up. If you don't have that ability and vision, you're probably in for a tough year."

To put it another way, an optimist says, "my cup runneth over, what a blessing". A pessimist says, "my cup runneth over, what a MESS." For many years I kept a little sign posted on my closet door that read..."An optimist sees a light that's not there, a pessimist comes along and blows it out." So, if things aren't going like you want, maybe it's time for an attitude adjustment..

You see more with your mind than with your eyes

Now, let me share several deals that I've done to show how you can "make things happen." Each deal improved my financial position and required very little effort on my part. Maybe you will be able to use these ideas to make more money in 2000.

Last week, I bought a mobile home note that nobody else would buy. I know of at least five other note buyers who turned this note down. Since I'm the only one who would buy this note, that must either make me the dummy, or there are five other note buyers that were unable to recognize an opportunity when they saw it. Here are the facts and figures on this note. See if you would you buy it?

This note has 80 payments of $145.45 remaining, and I bought it for $3,000. Run the numbers and see what kind of return I'm getting, and if I made a good deal. If I never get the first payment, will I still come out OK? You bet I will.

The note seller sold the home for $8,500 and has a co-signer on the note to boot. If I collect all 80 payments, I'll collect a total of $11,630, and I spent $3,000 to do it. If the buyer fails to pay, I get the home to resell for an additional profit.

So why didn't one of the other "experienced" note buyers grab this opportunity when they had the chance? We each saw the same facts and figures, but they saw a problem. I saw an opportunity.

Pre-pay a year's payments

Here's a neat little technique that has worked well for me and allowed me to keep more money in my pocket. If you have any private notes you're paying on, make your note holders this offer. (Probably won't work with a banker.)

For example, suppose you're making somebody $300 monthly payments. Offer to pre-pay the next 12 payments for a 15% discount. If your note holder says yes, you just made a little deal that's paying you a 31% return.

Here's how. $300 x 12 = $3,600, minus $540 (15% discount) leaves $3,060 that your note holder gets for the next 12 payments. This works out to be a 31% yield, and it hasn't cost you anything. You just have to come up with the $3,060. If you didn't have the $3,060, could you borrow it and pay 12%-15% if necessary and still make money?

I once made seven offers like this and had four out of the seven accepted. If your note holder won't agree to 15%, try for 10% and you still have almost a 20% return. Or six payments for a 10% discount, would give you a 37% return. This is a good time of the year to make such offers. Christmas is over, tax time is coming, and folks need money to pay for both.

Buy your own note

One of the best notes to buy is a note you're paying on. I once bought a fourplex, and the seller carried the paper. After rehabbing the property and increasing the rents, I offered to prepay 12 payments for a 15% discount. That didn't work. My next offer was to pre-pay a fourth of the mortgage and a fourth of the payments. That didn't work.

My next offer was to pay off the entire note provided the note holder would give me a "reasonable" discount. Bingo ! That got his attention, and we had a deal. I Don't remember the numbers, but they were good enough. So keep making offers.

If you're mailing a check every month, it won't cost anymore to include an offer with your payment. The note holder might not have any reason to sell now, but circumstances can change over-night. So keep in touch and keep making offers.

It's amazing how many times I've had somebody call and say they wanted to pay their note off, and they never ask for a discount. They simply ask for the payoff amount, and I get a check. But since they never made the effort to learn about money and financing, it never occurs to them that you can sometimes pay less than what you owe, and still get the entire 100% of value.

But most likely, those folks never go to conventions or seminars and learn how to do any better. They never learned about money and financing and probably still think that working a job is the only way to make money. And besides, who's got the time or the money to go to seminars and conventions just to listen to somebody trying to sell you books and tapes?

Help your buyer refinance

Here's a recent mobile home deal I did. I had $7,000 invested, sold it for $13,900, $1,400 down and a note for $12,500, payable $282.82 for 60 months. After four payments, my buyer said he was having trouble keeping his bills paid and needed to lower his payments about $100 per month.

I love notes, but I never turn down the chance to grab the cash either. So I helped him arrange to refinance with Conseco (formerly Green Tree) and was paid off. This is how the numbers looked: $1,400 down, $1,131 in payments and $11,994 payoff. Total received: $14,525, minus $7,000 invested, for a profit of $7,525 in five months.

Incidentally, how much will it cost this man to lower his payments $100? Conseco charged him seven points, and whatever other fees they could tack on, and set him up on a ten-year payback. (He only had 56 payments left with me.) Over the next 10 years, this man will pay over $21, 000, or roughly $6,000 more, just to get his payment lowered by $100 a month.

Obviously he must think his problem has been solved, but I think he's paying a terrible price for failing to learn how to do better. He sure could have benefited by going to a seminar and learning something about financing. And it would have cost a lot less, too. Guess you could say he's paying $6,000 for a seminar; he won't learn a thing, and he doesn't even know it.

I presently have another buyer trying to arrange a new loan and "consolidate" his bills. His payoff is approximately $12,000. Like the other man, I'm sure he's never heard of asking for a discount for early payoff. All he asked for was the payoff balance.

There's always a problem

Now, I'd like to cover one of the best money making investments I know of--mobile home LOTS. As many of you know, my biggest profits and highest yields are made on the typical cheapo "Lonnie Deals." These are the type deals that produce excellent cash flow, but it's a short term investment.

I normally try to structure the notes on these type deals for no longer than 36 months. So that means I have to constantly generate new sales to replace the ones paying off. But the cash build up from these cheapo deals is tremendous. And if you do enough of these cheapo deals, you'll wake up one day with more cash on hand than you can re-invest in mobile homes. So what to do?

Once you have excess cash on hand that's not needed for mobile homes, look for a long-term, well secured investment that will produce a reliable and steady cash flow. And one which will require very little, if any, of your time to manage. For me, that investment has been mobile home lots. Let me give you a brief history of what I've been able to do.

If you read Deals on Wheels, then you know how I happened to buy my first lot. The chapter "Christmas Shopping" explains how I bought the lot and also the note on the mobile home that was on the lot. That was about eight years ago. The note was paid off long ago, but the same tenant is still there, and is still paying lot rent.

The rents have gone from $190 to $250 per month, (I've collected at least $22,000 rent since buying this lot.) And, during this entire time, I've had no tenant, maintenance, or management problems. In fact, I wouldn't know the tenant if she walked in the door, I've only seen her twice since buying the lot, but her rent check is in my mail box the first of every month.

A couple of months ago, the manager of this park called saying one of the lot owners needed to sell his three lots in a hurry and for cash. (The lots in this park are deeded and sold individually, same as a residential lot.) With the managers help, I negotiated to buy all three lots for $39,000, which is about 30% less than market value.

Each lot was rented for $210 and should have been renting for $250. Maybe that's why the owner was in trouble, he probably never realized he was subsidizing his tenants rent to the tune of at least $40 monthly. The first thing I did was increase the rents to $235 (going to $250 at one pop might have been too much of a shock. I'll bring them up to market rates when the time is right.)

So with the stroke of a pen and three stamps, I gave myself a $900 per year raise on these three lots. (When was the last time your boss gave you that kind of a raise?) But even at $235, I still net $200 each month, which is about an 18% return. But the best part of this deal is the fact that I'll collect a payment from these lots for the rest of my life with very little management problems.

The tenants own the homes, so they get to fix any problems with the home. If they move, I'll fill the spot with my home, sell it, take a note, and have two payments coming in. This is another good example of how you can create steady, reliable cash flow that doesn't require you to be there.

If you can't find a park where you can buy individual lots, then buy the park. Mobile home parks are the nearest thing to a gold mine that I know of. (Review the chapter in Making Money with Mobile Homes on how my daughter, Janet, bought a 29-unit park. She receives $235 each month from 29 tenants, and spends less than two hours a month managing the park. Doesn't take long to deposit 29 checks.)

Cash flow, cash flow, cash flow

I want to point out a very important point in case you missed it. Did you notice that each of these deals require very little of my time or effort in order to get a monthly check. Unlike a job, once the deal is finalized I'll receive regular, steady, and reliable cash flow every month without any additional work.

I have no tenants, no property management, and no maintenance (other than the dirt) to worry about. And I don't even have to leave my house to get the checks. (Well, I do have to walk to the mail box.)

Like many of you, there was a time when I knew nothing about doing any of the deals like I've just shared with you. School didn't teach me a thing about money, financing, time value of money, working a calculator, yields and etc. I learned by attending seminars and conventions, by reading books, and listening to tapes.

I spent many hours and many bucks to learn from successful people that were doing what I wanted to do. And it's been the best investment I ever made.

In fact, even now, when I'm driving,or sitting at a traffic light, I'm usually listening to an educational tape, while the guy next to me, sitting in a new car he can't afford, on the way to his minimum wage job, is listening to the junk on his radio. Wonder what kind of a year he'll have?

We live by our choices

I had a choice back then as many of you do now: Keep working a job I didn't like that paid way too little money or learn how to do something much better that would provide the financial independence and financial security I wanted.

Time has certainly proven that I made the right choices. But I can still remember how friends and family members kept telling me what a dumb thing I was doing by quitting my "good secure job with all those benefits." Now I see some of those same folks, old and tired, working part-time jobs to supplement their "retirement."

I chose to pay for my education early in life, and these folks chose to pay for theirs when they got old. You each have the ability to make your own choices. Some of you will choose to be at the Creative Real Estate Online Convention in Atlanta because you can't afford not to be there.

Some of you will choose not to be there because you "can't afford to go." Some of you think that paying for an education is an expense. Some of you think, as I do, that it's the best investment you can make. And it's an investment that nobody can take away from you.

But if you choose not to pay now, that's okay, you can always pay later. Just talk with some of the folks that did, the ones that worked a lifetime and retired broke.

Best wishes for a healthy, happy and prosperous 2000. I hope when the clock turns over for 2001 that each of you will be enjoying the financial independence and financial security that you deserve. The only person that can stop you is you. "Today is the first day of the rest of your life." Use it wisely, make the right choices, take action, and you will succeed. See you in Atlanta.

Foot Note: The first of December, I sent notices to some of my best paying tenants telling them that if they needed to borrow any money, to let me know. Yesterday, I got a call from one needing a loan. Guess what, starting next month, my mail carrier's bag is going to be a little bit heavier. How sweet it is.

About the Author:

lonnie scruggsLonnie Scruggs owned, rented, and managed his own rental properties for 24 years. He became a burned-out landlord, sold all his rental properties and started investing in discounted notes. He soon developed his own specialty in used mobile home notes, with little competition and earning high yields.

Lonnie tells all and shares his inside secrets in his book: Taking the Mystery out of Money

 
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