Investing in notes is a way to invest
in real estate without the hassle of actually buying a property. It has many
advantages including less maintenance, higher interest, and more versatility
than purchasing an actual property.
Smart investors know that it is better to get a mortgage payment than a rent check.
This means that they understand that investing in notes
is more lucrative than purchasing a property and dealing with tenants. With notes you can get monthly cash
flow and also have the potential to earn higher returns. With real estate, as
opposed to notes, it’s not as passive because you have to deal with tenants,
maintenance, broken leases, and a number of other headaches. Even if you buy a
property to fix and flip, you still have to fix up the property and sell it,
which is much more work than simply purchasing a note investment and letting your money do the work for you.
If investing in notes sounds intriguing, there are a few things you
should know about the logistics of note investing before you get started. When you buy a note, you basically are
buying someone’s debt or mortgage. Each month, you earn the interest payment on
the mortgage note. You earn a consistent rate that is stable for the lifetime
of the note. This means you investment is protected from market fluctuations or
crashes in that the interest rate won’t drop. Since the note is backed by the actual
property, you are even protected in the event of borrower default.
Many new note buyers are afraid of
Foreclosure. However, if you are note investing,
you are often more protected than if you are a landlord. For example, if a
tenant of a rental property doesn’t pay rent, you have to take the tenant to
court by filing for eviction. Not only do you lose rent, but you have to evict
them, pay court costs, fix the property and re-rent the unit. Usually, these
expenses will never be reimbursed because many tenants do not have assets
(usually the reason they are renting instead of buying). With a homeowner, if
they miss any payments and there’s equity in the property, you can collect the
missed payments, late fees, corporate advances and any attorney fees. You can
draw up your note documents to cover these fees using equity in the property. There’s
also a significant difference between a homeowner’s mentality and a tenant’s
mindset. The homeowner usually has more invested into the property due to pride
of ownership. Most people do not want to lose their home and will make paying
their mortgage a priority, even during times of financial stress.
3 Easy Ways to
Risk Less with Note Investing
While real estate note investing is a relatively safe investment strategy because it
is backed by physical collateral, there are still risks involved. Mainly, there
is a risk that the borrower will default and the home will have no equity. This
will lead to you losing money. While this is a risk, there are ways to make
this risk less likely.
your research on the note you are buying. Don’t buy a note on a house that you
would not want to own. Now, this does not mean you would want to live there,
but only purchase notes that would also be good real estate investments. Choose
properties that are in good areas of town and that have consistently
appreciated in value. This will help ensure that there is equity in the property
if it ends up needing to be foreclosed on. The more equity in the property, the
more likely you will be to get all of your money back as well as any fees
incurred during the foreclosure process.
with a financial professional. Note investing
can be very lucrative, it is not something most people can manage on their
own. It is well worth the small monthly fee you pay to a private investor to
help you manage your note portfolio.
your options. There are many ways to make money investing in notes. You can rehab a note, buy non-performing notes, sell your notes, or even borrow against your
notes. Make sure you know all the ways your note can work for you.
advice of smart investors and financial advisors by investing in notes. Call Level 4 Funding today to find out the
types of notes that will fit into your budget and start making your money work
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23335 N 18th Drive Suite 120
Phoenix AZ 85027