My name is Maria Stevens, and I just had my 10th birthday. I’ve already started making 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. I started buying notes with my brother, Rory, because my family owns a note-buying company, and they help us understand each step of the way.
How two kids started buying small notes
Maybe you’d like to do what I’m doing, so let me explain. I only buy small notes, and I split the cost with my brother. I’ve bought seven notes so far, and two have already paid off.
I paid $1,500 for my 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 one paid off early because the property was refinanced. I don’t know why the first one paid off so early. I just know a 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 for toys, because it’s all for college.
Why small notes can pay a bigger yield
The notes I buy are called small notes: notes under $10,000. My family says the yield (the profit you can make) is usually bigger on a small note, because you can get a better price.
My seven notes are good examples of the different kinds of small notes. In the table, “my cost” is my half; my brother paid the other half.
| Note | Type | My cost | What happened |
|---|---|---|---|
| 1 | Future proceeds | $1,500 | Paid off early; $4,823 profit |
| 2 | Wraparound on a building lot | $500 | Paid off early; $698 profit |
| 3 | Second mortgage from a note package | Free | Balloon payment due after 5 years |
| 4 | Delinquent second mortgage | $1,250 | Pays me $50 a month |
| 5 | Second mortgage on a tavern | $1,730 | Pays me $62.50 a month |
| 6 | Note on a 36-foot sailboat | $3,460 | Yield of at least 36.81% |
| 7 | Second mortgage on a house in Texas | $1,713 | Pays me $70 a month; 43.57% yield |
Seven notes and how each one works
Future proceeds
My first note was called “future proceeds,” because the money was supposed to come in the future. The note had 100 payments. 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 any money, but everything happened much faster. I’ve already been paid off, and made even more because it paid off so early.
A wraparound
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 out of the payments I received on the $16,000 wraparound note, and I got to keep what was left over. The lot was refinanced and I got paid off early, so I made a profit of $698 and got my $500 back.
A second mortgage from a note package
My third note was a small second mortgage of $6,000. My family got a good price when they bought the first mortgage, so they gave us the second mortgage as a present. My brother and I should be paid in one big balloon payment of $4,800 after 5 years altogether. We only have three and a half years to go!
A delinquent second mortgage
When my family bought a first mortgage from an elderly couple, they noticed a delinquent second mortgage on the title report. The owner of the second was a single woman who had recently lost her job and needed money right away. So we bought the $5,000 note for only $2,500. The payor had been four months behind, but he started paying on time. Now I get $50 a month from this deal.
A business broker’s commission on a tavern
My fifth note is on a tavern! A business broker sold the tavern and took his commission later, as 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, and I get $62.50 a month. The tavern is worth a lot more than both mortgages against it, so there isn’t much chance of a foreclosure. If that did happen, my family would have to buy the note from us, because we aren’t old enough to own a tavern in our state. Rory thought we were, since our ages added up to 21 at the time. After all, I was 9 and he was 12!
A note on a sailboat
My sixth note is on a 36-foot sailboat. The payor has always been three months behind, but he always makes the payments. His dream is to live on the boat when his teenage children are grown, so this seemed like a safe deal. We hold the title to the boat, so we could take it if he stopped paying. Rory wants the boat, but I just want the money! I paid $3,460 for my half of the note, so the whole note cost $6,920. It seemed expensive, but we get large payments every month. My yield will be at least 36.81%, and I could make about $1,250 profit by the time it’s paid off.
A second mortgage on a house in Texas
My seventh note is a second mortgage on a small house in Texas. Because it was a small note, it was discounted heavily, for a 43.57% yield. I paid $1,713, and I get $70 each month. My profit when the note pays 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 on my money than if it had sat in a savings account earning the low interest a bank pays.
Kids pay taxes, too
The part I don’t like is paying taxes to the IRS on my income. I think it’s too much for a kid to pay! Last year I had to pay a lot. From now on I even have to pay estimated tax four times a year. I get a cashier’s check made out to the IRS from my bank account and mail it in. I’m really learning about the good and not-so-good sides of making money.
My family talks with me about each note before I buy it. We look into the history of the note and the people involved before we decide to buy.
Where to find small notes
I know I’m lucky to have my family’s help, but you could find good small notes on your own:
- Business brokers. Ask whether they have any deferred commission notes.
- Boat sellers. Check the want ads or ask used boat dealers about people trying to sell their boats. Tell them that if they carry a note on the boat, you might be interested in buying it.
- Real estate brokers and lenders. Ask about “small seconds.” When a buyer has too little cash or can’t get a big enough loan, the seller might carry a second mortgage, and you might be able to buy it.
- Note brokers. Small notes often seem too small for a broker’s fee, so you might be able to buy them for less. Some note buyers won’t take them because they take too much time and work. Maybe you can help them out!
My brother and I each started with only $1,500 for our first note, and now we each have about double that in the bank for our eighth note. I earned my first money cleaning the office and posting the mail at my family’s company. It was hard not to spend it on fun, but now I understand it’s better to let my money make more money for my future.
Small notes cost less and usually take less time to close than bigger deals. You could even let your money grow with small deals until you can buy a big one. I really recommend small notes as a way to get started in note buying.
