know it or not, you are probably already involved in note investing but on the wrong side of it. Investing in notes is the process of buying debt in the form of
credit cards, student loans, mortgages, or car loans. But instead of making
payments, you collect payments from the borrower, which include a higher than
average interest rate.
investors think that note investing
sounds too good to be true, or may even think it is a scam. This could not be
further from the truth. Note investing
is simply the process of purchasing debts that borrowers owe. Once you purchase
the debt, you earn interest each month until the debt is paid in full by the
borrower. This interest can range anywhere from 3% on a mortgage note to well
over 15% on a debt like a credit card. The interest rate is not subject to
changing market conditions so you earn the same rate over the life of the loan,
which can be anywhere from a few months to 30 years, depending on the terms of
are many types of note investing
like credit cards or car loans, there are some specific advantages that come
with investing in real estate notes. Investing in notes
that are tied to the real estate market is very similar to trust
deed investing. Basically, you purchase a mortgage debt from a bank. The bank
benefits because there is less of a risk of loss in the case of default because
it has capital from you. You benefit because you can now start earning the
interest that is paid by the borrower each month. While this may be a
relatively low rate, it is usually a high payment due to the amount of money
involved in the transaction. You can earn hundreds every month compared to a
credit card note which may have a higher interest rate but generally a lower
balance so the monthly interest payment is less.
monthly payments makes real estate note investing
one popular way to start investingin notes
is to invest in real estate notes. In this situation you basically
buy a promissory note that is part of a mortgage. You hold the note and earn
interest. You receive payments each month until the mortgage is paid in full
and then you get back your initial investment. You don’t have to work for your
payments, you sit back and let the cash flow in.
note investing also has an extra opportunity for smart investors to earn high returns,
non-performing note is exactly what it sounds like, a debt that is currently
not being paid. When a mortgage is not being paid, the bank has two options,
foreclose on the property or sell the note to an investor. While several years
ago foreclosure was the first choice, many banks are now opting to sell non-performing notes
. By selling the note rather than
going through the expensive and sometimes drawn out process of foreclosing, a
bank stays out of the chain of title, doesn’t become liable for the property’s
environmental conditions and doesn’t have to worry about ownership issues. The
sale of non-performing notes is a
cheaper alternative to foreclosure.
Once you own a non-performing
note, you basically fix up the note the same way you would fix up a
property. You can renegotiate the terms of the note with the borrower if you
goal is long term monthly payments and interest earning. Or, if you would
prefer to own the actual property that you hold the note on, you can foreclose
on it and take possession. From here you can rent it out, fix and flip it, or
hold onto it until it appraises for the amount you want to sell it for.
Regardless of which avenue you take, you will make a profit on your non-performing note.
The greatest risk with non-performing
notes is that you will lose money during foreclosure. You can help make
this less likely by knowing all the laws related to foreclosure in the state
where you own the note. Make sure to take into account any extra expenses the foreclosure
process may entail.
At Level 4 Funding, we specialize in alternative investment
strategies like investing in notes.
We can help you through the process to help you start working less and earning
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