Use notes to buy tax sale property. Post 206.

Coach Mitch’s REFLECTIONS™

[Editor’s Note] A student asks about structuring a promissory note.

Coach Mitch,

Hypothetical scenario,

when a tax delinquent homeowner agrees to transfer the property’s responsibility to me, title included, how should a promissory note be structured? Should the amount of the note be the tax amount that has been paid by the investor, plus interest? Or should it include the tax amount paid + sell back / transfer back price? I know that there are many different types of ways to structure a pay back, but I would like your feedback or recommendation on best practices.


There are several levels of purchases: Retail, Wholesale, Firesale, and Give-A-Way.

When I think of “buying” I mean using your own money, your savings. If another investor is satisfied with putting up their monies at 75%+ of retail, then do it. I never have used my own money for any property over 50% Fair Market Value.

You can option at Retail, but you never purchase at retail, which I define as 80-90+% of Fair Market Value. You also never pay Wholesale, 65-75% of FMV. You can look at Firesale property, 40-50% FMV, but you try to buy at Give-A-Way prices, 10-20% FMV.


The best way to consistently speak with those who may give-a-way their property are those whom you’ve captured in “The Vice.”

The biggest consideration is to find desperate sellers and to give the seller what they need. After that, you can request that you get what you need. If the sellers “need” a certain number, then give it to them, but in a way that you can make a profit.

The ways to give them their price but in a way that you can make a profit becomes more clear if knowing Time Value of Money calculations. Teach yourself at: The Time Value of Money Calculator 

Back in 1985 I purchased a HP12C financial calculator for $65, which I still use. Ebay currently has them selling for $63. I spent a weekend reading, learning and attempting calculations. I still remember being fascinated by learning about a concept called a Time Line. Learning about the five basic financial values and how to manipulate them was a signature moment. My salesmen were astounded when I showed them how to use the calculator to pre-qualify people for mortgages and how to do deals by discounting notes.

After almost 30 years, I can now approximate calculations in my head, but my HP12C is always close by.

The way it is –

People always want their money in a  full lump sum, but they will often take a smaller lump payment and a periodic payment. You have to drag out of them the reasons they need the funds and then figure how to accommodate their need.

A BIG trick, try to make differing calculations result in the same ROR.


1. A proposed promissory note: 60m term, 10% interest rate, $10000 note, $212m payment.

2. However the sellers want more money. You say OK, but you need to pay your way: 84m term, 5% interest, $15000 note, $212/m payment.

3. The seller wants even more money. OK, your new proposal is: 95m term, 0% interest, $20000 note, $212/m. Voila!

The same concept can be done if the seller wants a higher interest rate. You manipulate any of the other values to make the calculation come out the way you want. The seller thinks he is getting his higher interest rate and you are getting a deal – in a way that you can make a profit.

 Time Value Of Money

The central idea is that money loses value over time, due to inflation, opportunity cost and other real world issues. That is to say, money in your hand today is worth more than money that you may receive over time, and the more distant the time, the less valuable the money is perceived to be and therefore the higher the interest rate that must be gotten to accomplish the rate of return that you need.

The Note

The paperwork is all the same excepting the numbers.

A Promissory Note is straight forward; you say you promise to pay with the following terms and fill in each value, i.e. term, interest, principle, payment, and future value. You sign and notarize the document and you’re done.

Once you have learned to use either the HP12C or the Texas Instruments BA II Plus, even a little bit, you will become VASTLY more powerful as a negotiator. Others will argue going from $10000 to $20000. Not you; you just say, “Yes.” Coach Mitch always says, “Yes.” Then figure out how to do it. If you can’t do the figuring, call me and we’ll do it together. You just say, “Yes.”


Once the idea of the note is accepted, be sure to add clauses that will come in handy in the future. Be sure to have a Right of First Refusal, so if the seller wants cash now, that you have the ability to buy first. You can also have a Pre-Payment Foregivness  clause, where you get a discount if you pay off the note early.

Be empathetic, be creative, be assertive –

Mitchell Goldstein - Coach Mitch
518-439-6100 until midnight EST


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