Maria’s Money

My name is Maria Stevens, and I just had my 10th birthday. I'm lucky that I've already started to make money with real estate and business notes, so I can save for college! I may seem young for this, but I trust the advice I get, and I really like the idea of making money! I started buying notes with my brother, Rory, because my family owns Wall Street Brokers. Since they are in the business of buying notes, they help us to understand each step of the way.

Maybe you'd like to do what I'm doing, so let me explain. I only buy small notes, and split the cost with my brother. I've bought seven notes so far, and two have paid off already! I paid $1,500 for the first note, and (believe it or not) I made a profit of $4,823 because the note paid off really early! My second note cost me $500, and my profit was $698! That note paid off early because the property was refinanced. I don't know why the first one paid off so early. I just know this huge check came for my brother and me in the mail one day. I wanted to cash it at the store right away, but my family said it all has to go in the bank to buy another note. I can't even use the money to buy any toys, because it's all just for college.

The notes I buy are called “small notes”, ones less than $10,000. My family says that the yield (the profit you can make) is usually bigger on a small note, because you can get a better price. The most I've paid is $3,460 for a note on a boat. Since my brother & I split the cost, the note really cost $6,920. This one seemed expensive, but we get large payments every month. The least I paid was $500 for my second note. My third note was actually free for me, because it was part of a note package my family bought. I paid $1,250 for my fourth note, $1,730 for my fifth note, $3,460 for my sixth note, and $1,712 for my seventh note.

There are all different kinds of small notes. My seven are good examples of small notes, so let me tell you about them. I bought one “future proceeds”; one wraparound; a delinquent note; a note on a boat; and three second mortgages: one as a note package, one as a business broker's commission on a tavern, and one on a house.

My first note was the “future proceeds”, because the money was supposed to come in the future. There were 100 payments to be made on this note. Another note buyer bought the first 60 payments, and I bought the last 40 from the note owner. My $1,500 would have been tied up for five years before I got my money, but everything happened a lot faster! I've already been paid off, and made even more because it paid off so early.

My second note was a wraparound. People who owed $11,000 on a first mortgage on a building lot sold me a $16,000 note. I had to make the payments on the $11,000 mortgage, from the payments made to me on the $16,000 wraparound note. I got to keep what was left over. As it turned out, the lot was refinanced and I got paid off early. So I made a profit of $698, plus I got my $500 back.

My third note was a small second mortgage of $6,000. Since my family got a good price when they bought the first mortgage, they gave us the second mortgage as a present. My brother and I should each be paid in one big “balloon” payment of $4,800 after 5 years altogether. We only have 3 and a half years to go!

My fourth deal was a delinquent second mortgage. When my family bought the first mortgage from an elderly couple, they noticed a delinquent second mortgage on the title report. The owner of the second mortgage was a single woman, who had recently lost her job and needed the money right away. So we bought the $5,000 note for only $2,500. Although the payor had been four months late in payments, he started paying on time. Now I have an income of $50 a month from this deal.

My fifth note is on a tavern! A business broker sold this tavern, and took a deferred commission secured by a second mortgage on the tavern. We bought the second mortgage from the broker, so he could have the cash. I paid $1,730 for my half of the note. I get $62.50 a month on this note. Since the tavern is worth a lot more than both the first and second mortgages against it, there isn't much chance of a foreclosure. If that did happen, though, my family would have to buy the note from my brother and me, since we aren't old enough to own a tavern in our state. Rory thought we were, since our ages together at the time of the sale added up to 21! After all, I was 9 and he was 12!

My sixth note is on a 36′ sailboat. Although the payor has always been 3 months behind in making his payments, he always makes the payments. We know his dream is to live on the boat when his teenaged children are grown, so this seemed like a safe deal. We hold the title to the boat, so we could take it, if he stops paying. Rory wants to have the boat, but I just want the money! I paid $3,460 for the note. My yield on this note will be at least 36.81%! I could make about $1,250 profit by the time it's paid off.

My seventh note is a second mortgage on a small house in Texas. Because it was a small note, it was discounted heavily, with a 43.57% yield. I paid $1,713, and I get $70 each month. My profit when the note gets paid off could be $2,550 over 5 years.

Right now, I have $3,744 in my bank account, so we're looking for a new small note to buy. So far, I've made a lot more profit on my money than if I'd let it sit in my savings account, earning the low interest that a bank pays.

Of course, the part I don't like about all this is that I have to pay taxes to the Internal Revenue Service on the income I make. I think it's too much for a kid to pay! Last year, I had to pay a lot of money to the IRS. From now on, I even have to pay an estimated tax four times a year. I get a cashier's check from my bank account made out to the IRS, then I put that in an envelope and mail it. I'm really learning about all the good and the not-so-good sides of making money!

My family talks to me about each note before I buy it. We look into the history of the note and the people involved before deciding to buy, believing our decisions are good ones. I like learning about money and business, especially because I can see how I'm really making good money on these notes!

I know I'm lucky to have my family help me, but you could find some good note deals on your own. Check with business brokers to see if they have any deferred commission notes. The yellow pages in the phone book can direct you to these business brokers. Check the want ads or ask used boat dealers for someone who is trying to sell their boat. Tell them that if they carry a note on the boat, you might be interested in buying that note.

Check also with real estate brokers and lenders for “small seconds”. This would be when the mortgage brokers are arranging a loan to buy a house. If a buyer has too little cash, or can't get a big enough loan, then the seller might take a second mortgage. Maybe you could buy this second mortgage.

Other good sources to look for notes to buy are note brokers. Lots of times the small notes seem too small for the broker's fee, so you might be able to buy it at a lower cost to you. Some note brokers don't want to buy these because they are too small, and take too much time and work. Maybe you can help them out!

You can see how great this note buying has been for me and my brother. We each started out with only $1,500 to buy our first note, and now we both have double that money in the bank for our eighth note. The first money I earned by cleaning the office and posting the mail at Wall Street Brokers. Of course, it was hard for me not to use that money for fun, but I understand especially now that it's better to let my money make more money for my future.

You can have as much success as I have when you buy small notes–even your children and grandchildren can! The nice thing about small notes is that they cost you less, and usually take less time to close than a bigger deal. You could even let your money grow with your small deals to the point where you could buy a big deal, if you want. Whatever you do with your note buying, I really recommend small notes as a great way to get into the note buying business!