Real Estate Investors can purchase “Discounted Notes” or “Real Estate Paper”, secured by brick and mortor real estate, by buying any of the following: Newly Originated Notes, Performing Notes, Non Performing Notes, and Loan Pools easily on the internet.
Generally, a note or mortgage note is created when a buyer, private seller or lender agree to payment arrangements to pay off the balance owed on a real estate transaction (think mortgate, land contract). The person receiving the payments can either wait on the expected payment each month or sell the note to someone else to get a larger payment sooner instead of stretching it over 10, 15 or 30 years.
Typically, you buy real estate notes for 40 to 70 cents on the dollar from banks on non-performing notes or foreclosed property. This is a business about making money with paper-literally. Forget about tenants and toilets. You'll enjoy all the security and high returns of real estate investing without the headaches of landlording.
—–> You earn the difference between what the seller takes and what the buyer pays.
When buying notes the Seller does almost all the work, and takes the risk. Few businesses are able to provide such profits with so little personal risk or expenditure.
If you are buying mortgage notes from banks or private sellers then you know sometimes those small pesky details can turn into big trouble. There is usually significant information available with Notes For Sale from the Seller, but Buyers should do their own research and have a solid investment strategy. The most popular Buyer research items are a current independent BPO and an Ownership & Encumbrance Report, both usually available with a note is placed for sale with my company or under Seller additional information when listed on other note exchange websites.
When Buying Notes What Should My Criteria Include?
Here are key points that you must ask yourself when determining your buying criteria:
- Price: Cents on the Dollar of the Unpaid Principal Balance. Usually a % of the property value is backed into this number.
- Position of debt: Senior or Junior liens
- Location: States & Cities
- Payment terms: Cash
- Commissions: Typical for Broker is 1% – 3% depending on how large the acquisition
- Property types: Single family, Commercial ( retail, multi family, industrial, etc) Land
- Due Diligence period: All depends on how many assets you are accessing
- Closing period: Time in which the buyer wires the money into escrow and the seller provides documents.
- Type of Exit Strategy: Sale of note, owner refinance, short loan payoff, owner short sale, sell at foreclosure sale and foreclose/REO sale.
Remember when looking for a Discounted Note investment; be specific on your exit strategies. This will determine the price and the product that you will need to purchase in order to achieve your returns.
Remember —-> It's always a numbers game!