Bad Beat and Best Deals in Note Investing

Investing in real estate notes can generate income without direct property management. Instead, investors earn interest on the loan. However, it carries risks, such as borrower default. Before investing in real estate notes, thorough due diligence is crucial for potential investors.

Watch Episode 60: Bad Beat and Best Deals in Note Investing with Paige Panzarello

Discover the fascinating world of note investing! Dive into the captivating presentation above and the informative blog below, where we unravel the intricacies and nuances of this exciting investment strategy. Get ready to unlock new insights and opportunities in note investing!

Discover The Magic Of Notes!

In real estate investing, a note, or promissory note, is a financial instrument that documents a property purchase loan. It's a written promise from the borrower to repay a specific amount to the lender under agreed terms.

Key features of notes in real estate investing:

  1. Principal and Interest: The note specifies the loan amount, including the original principal and the interest rate. The interest can be fixed or variable, based on the agreement.
  2. Repayment Schedule: Outlines the repayment schedule, specifying payment due dates and amounts. Repayment can be monthly, quarterly, or agreed upon by all parties.
  3. Term: The note's term is the duration for loan repayment, ranging from months to years.
  4. Default Provisions: The note also includes provisions for borrower default, which may lead to foreclosure and the lender taking ownership of the property to recover their investment.
  5. Collateral: In real estate investing, the purchased property is collateral for the loan. If the borrower defaults, the lender can seize and sell the property to recover funds.

Unleash Your Inner Financial Power: Becoming The Bank

Becoming the bank with notes investing means buying mortgage notes and taking on the role of the lender. Instead of owning the property, you invest in debt or loans where the borrower owes you money.

Here are the steps to become the bank with notes investing:

  1. Educate Yourself: Before you start note investing, it's crucial to understand the basics. Familiarize yourself with terms like performing vs. non-performing notes, first vs. second liens, and the foreclosure process.
  2. Find Notes to Buy: You can buy real estate notes from banks, hedge funds, brokers, or other investors. Online platforms and marketplaces also exist for finding notes for sale.
  3. Due Diligence: Just like in property investing, thorough research is crucial. Assess the borrower's payment history, property condition, value, and loan terms. Also, verify all legal documentation.
  4. Purchase the Note: After researching and selecting a note to invest in, you can proceed. The transaction process usually involves a purchase agreement and the transfer of notes and mortgage documents.
  5. Manage the Investment: You take on the bank's role after purchasing the note. For performing notes, you'll receive monthly payments from the borrower. For non-performing notes, you may need to work with the borrower to resume payments or go through the foreclosure process.
  6. Exit Strategy: Depending on the outcome, note investors can profit by receiving loan payments, selling the note for a profit, or acquiring and selling the property in case of foreclosure

Explore the World of Investment: Uncover the Diverse Spectrum of Notes

There are several types of real estate notes that you can invest in, each with its level of risk and potential return. Here are a few:

  1. Performing Notes: These loans require regular borrower payments as agreed in the loan terms. Investing in performing notes yields a steady income stream from loan interest.
  2. Non-Performing Notes: These are loans where the borrower has stopped paying. You can buy non-performing notes at a discount. As an investor, you can profit by helping the borrower, restructuring the loan, or foreclosing and selling the property.
  3. Seller-Financed Notes: Owner-financed notes occur when the property seller finances the buyer's purchase. The buyer then pays directly to the seller or the investor who purchases the note.
  4. Junior Lien Notes: These are secondary mortgages on a property. Junior lien notes can offer high returns but come with higher risk as they are subordinate to senior liens. In foreclosure, senior liens get paid first.
  5. Reperforming Notes: Previously non-performing loans are current, making them attractive to investors. They are often sold at a lower price than performing notes yet carry less risk than non-performing ones.
  6. First Lien Notes: Primary mortgages are paid first in the event of property foreclosure, prioritizing the first lien holder over other lien holders.
  7. Commercial Real Estate Notes: These are for commercial properties such as offices, retail spaces, or apartment complexes. Commercial real estate notes can yield higher returns than residential notes but require expertise for effective management.

Key Takeaways

Investing in notes is an excellent strategy to diversify your portfolio. It generates income without property ownership challenges, like maintenance, tenants, or property taxes.

As a note investor, you earn returns from loan interest, generating passive income. Note investing offers a range of risks and rewards, from the safety of performing notes to the high-return potential of non-performing or junior lien notes. Tailor your investment approach to match your risk tolerance and financial goals. Note investing can also mitigate portfolio risk as it is less correlated with the stock market, providing a buffer during market volatility.

Note investing provides ample opportunities for diversification within the asset class. Investors have many investment options like residential and commercial notes, first and junior liens, and reperforming notes.

Are you interested in note investing? Want to make informed investment decisions? Join us in Royal Investing Group Mentoring. Learn from the best, network with investors, and fuel your journey to financial empowerment. 

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Note Investing: You Become the Bank

What options are available when inventory is low and priced too high to be profitable? You become the bank with note investing!

For a real estate investor, note investing might be an excellent option for you. With this type of real estate investment, you won’t have to manage property or deal with other types of transactions actively. It’s passive income. 

As with any asset, you need asset protection. We provide asset protection strategies in all 50 states for all asset classes, including real estate notes. 

Use this guide to start you down the right path. Are you in the market for an investment that provides passive income without the dregs of property ownership? If so, note investing might be the answer to your prayers. Keep reading to evaluate the feasibility of this investment for your financial situation.

Note Investing Explained

Note investing is when you purchase real estate notes. The idea is that you change the terms of the note by reselling it, or you foreclose on the property to generate cash flow. 

What’s A Real Estate Note?

Simply put, the real estate note is two things. The first is the promise to pay or a promissory note. The second is a lien. A real estate note is the same thing as your mortgage note. 

In other words, it’s a written promise to pay money plus interest for a predetermined time. The mortgage places a lien on the title of real property to secure the written contract. If you default on your mortgage, the property may go into foreclosure. Defaults and foreclosures provide unique opportunities for real estate investors. 

When you start note investing, you know the difference between performing and non-performing notes:

Why Should I Invest In Performing Notes?

Performing notes provide passive income. There is less risk in note investing with performing notes because the borrowers are keeping up with their mortgage. That means they make on-time payments. Those on-time payments provide a source of relatively reliable passive income. 

Why Should I Invest In Non-Performing Notes?

Note investing has several advantages. They are: 

Cheaper: The non-performing real estate is secured by the equity in the property. If the borrower defaults, the real estate is more affordable to buy. You can purchase these notes from .38 to .62 on the dollar. 

Income potential: Another advantage is that depending on how you resolve the note, you could experience an excellent return on investment or create ongoing passive income. 

Secured by real property: Inflation. Stagnant wages. Whatever the reason, people are increasingly defaulting on their homes at a higher rate. For instance, there has been a 24% increase in foreclosures post-Covid indicates. Those homes represent a tremendous opportunity in this note investing space.

How Do I Get Started? 

You will need to find someone who will sell real estate notes to you. Typically, you will be able to buy notes from banks, other investors, note investment funds, and real estate brokers. 

Risks of Note Investing

No investment is without risk. Before making any financial decision, you should consult a qualified financial advisor or attorney to decide what’s right for you. There are a few perils associated with note investing:

Rewards of Note Investing

Note investing has several rewards if you decide it’s the right investment strategy for you. Number one is it might make you a lot of money if you do it right. 

The first step, you have always got to cover your assets. You don’t want your assets exposed, so protect them. 

After that crucial step, you could potentially enjoy the benefits, including: 

What Does It Mean To Become The Bank With Note Investing?

When you buy a note, you become the bank. As the bank, you have complete control over your exit strategy. As a real estate investor, that will bring some peace of mind. 

Key Takeaways

There are several things to consider when deciding whether note investing is right for you. Here are the primary takeaways from this guide:

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