Are you planning to invest in real estate notes? Well, congratulations, we hope you gain unprecedented profits. But wait, before jumping the ship, you need to ask some questions. While there are numerous ones to ask, we have selected these to be precise. So, here we go:
Ask about the Property’s Current Value
The property’s current value is the most important thing to consider while investing in these notes. If you are smart, you will not ignore this vital information. You also need to learn if there’s any collateral and its value.
Get the property appraised by a licensed appraiser, who will perform a thorough evaluation. During this process, take a look at both the exteriors and interiors to see if it needs rehabilitation. Of course, you need to check the rehabilitation cost too, for proper evaluation. And if the house needs it, then the price will shoot down, which means you need to check the ARV (After Repair Value).
Ask about the Risks
While lending money or mortgaging a property, you need to analyze the risk profile. Will the borrower pay the installments within the time mentioned in the note? Or, do you have to think about some other processes?
The loan-to-value ratio is the best tool to analyze it. The golden rule is that the loan value must match the property’s value. This will ensure you get the maximum of the proceeds if you have to sell the building.
A subsection of this question is how the payer will pay you? For this, you need to evaluate the borrower’s past actions (payment history), and habits. Check out how much equity (in the property) he owns. If the amount is huge, then you will have a continuous cash flow.
If the payer cannot continue with the cash flow, he will have a better opportunity. He can sell the property for a value higher than the real one and then can pay it off. So, you don’t have to worry about foreclosure, as it is a negative event for both parties.
Check out the Location
According to the mortgage note investing experts, the location plays a crucial role in its valuation. The real estate laws can vary, and you need to comply with these rules if you want to gain extensive profits. For example, you must follow them to ensure you enjoy assistance from the government, especially during foreclosure.
It is not unusual for an investor to pick a location where he is comfortable. He is aware of the rules and regulations and can negotiate according to his terms.
How About an Exit Strategy?
This is something any investor must plan in advance. It can prove to be beneficial in problematic situations.
But for those who are unaware of note investing, here are some basic questions:
What are Real Estate Notes?
A document that offers information about a property’s value, and the rate at which it is mortgaged. It also contains details about how or when the payer will be paying the amount. These notes are an excellent alternative investment option out there. One can use any account to buy these notes, including retirement accounts. This flexibility is not available in any traditional investment options.
You will mainly get performing, and non-performing notes, and in some cases, real estate owned (REO) notes. Performing notes (usually receives continuous payment, or the period of non-payment is less than 120 days).
Non-performing notes (non-payment for more than 4 months)
REO (property is foreclosed and now owned by the lender). In this case, the house or the building will be up for sale, not the note itself.
Ok, I get that real estate investment is a lucrative idea. But why own notes?
If you own the property and want to sell or rent it, you need to keep it in supreme condition. You must check how the building is looking, and if it needs repairs, and what will be the cost. But, if you try the notes, you can leave these issues to the homeowner.
How to Buy These Notes?
You can visit online marketplaces, banks, and trading desks to check out potential notes with high value. You can also ask other investors to provide information on the sale of different notes, along with detailed information.
While doing so, you must perform a thorough check, before selecting one or multiple notes. If you have seen a note that you like, you need to participate in an auction, and the buyer will have some time to decide how to respond. Usually, the time is 10 days, and after that one cannot close the deal anymore. If you want to cancel the transaction, you can certainly do so. Different platforms accept different modes of payment, choose one according to your convenience.
You can apply different filters while searching for these notes:
- Property type
- Lien position
- Last evaluation report
- If there’s any unpaid balance, check it
- Current interest rate
What to Check While Buying a Note?
- Repayment details
- Property details
- Payment history of the borrower
- Service information
- Document copies
- BPO (Broker’s Price Opinion) details
I want to learn more about buying a mortgage note and note investment in general. Where should I look?
Well, you can get the following information on different websites, and platforms. At NoteConference, you can get detailed data on this subject. We will take you through all the corners of note investing, and how to not get bamboozled.
We will also help you discover the current trends in note investing, and the laws associated with it. Together, we will explore different case studies, and explain why they must be studied.
If you want to buy these notes, we will tell you about the perfect place. On the contrary, if you want to sell them, we will help you with that too.
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