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Non-Performing Notes

A real estate note is a promissory note on to repay a specified sum of money plus interest on a mortgage loan. Mortgage notes are a good investment opportunities offering them payment over a period of time. They are traded on the secondary market quoted as a percentage figure. When you own a note, you are the one receiving payment from the owners and you have the right to repossess the house in case the owners default in payment.

Non-performing notes is the most common real estate notes. It is a mortgage that has been defaulted in payment and has the risk of being fore-closed by the bank. For the buyer this means they can be able to purchase the property at a favorable discount and sell them at good profits. The investor can then rework the note or repurchase the asset. They can be found at about half price of the note value for residential properties.

The other way to profit from non-performing notes is to buy out the former homeowner who still lives in the house. As the new owner, the fees attached to foreclosing will not apply to you. If you do not place a deficiency judgment on the former owner, you can list the property for sale or lease to tenants. Furthermore, you can discuss with the homeowner to reduce the unpaid principle balance and save the property from its non performing state. After 6 to 12 months of timely payments from the homeowner, the property will become a performing note with increased selling potential.

Non-performing notes have a potential to earn higher returns because of the limited liability of the notes holders. When real estate value goes up the value of the notes appreciate too. If you have equity to protect the mortgage, the risk of default in payment by the tenants is less. Besides, notes are much easier to manage than the case of real property. The burden of house repairs, renovation, and other maintenance expenses do not rest with the note holders. Non-performing notes give you flexibility; you can sell the note at a profit or refinance the borrower and also be able to get a loan against the note.

An REO is a real estate property owned by a bank and the property has been previously foreclosed and failed to sell in the real estate market. These kinds of property are a real deal for investors; banks are desperate to sell the properties so they will allow a huge discount. Banks find it rather expensive to manage properties; they are in the selling business. They group together a number of homes and try to sell them in bulk.

You can acquire REOS using private equity funds or real estate investment trusts to buy these homes in bulk. You can then resell the homes to secondary buyers at a profit. Alternatively you can renovate the homes for better prices or leasing to tenants. The tenants can either take a mortgage with a bank or use an FHA loan.

Other real estate notes include performing notes and sub performing notes. A performing note is one that a borrower is currently repaying. They are can be found for sale at real estate auctions. They are low on returns; however, they are the best option when you’re looking to invest long-term. Sub performing notes are those that the borrower has been making inconsistent payment on the loan. They can be found at half price of their face value. Investing in these kinds of notes is risky because the owner has to pursue the borrower until the loan is paid.

Notes are a great way of real estate investing. Many banks are opting to sell notes to increase their cash flow rather than foreclosing their properties. There has been an ample supply of notes in the real estate market since the foreclosure crises. The housing market is still trying to recover since the Great Recession. Investors get the notes from banks, hedge funds or private equity firms. Currently, real estate notes carry very important information that is needed to understand how much money has been borrowed and for what purpose. They include the legal names of the lender, the property description, and the terms of agreement.

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5 Reasons Owners Offer Seller Financing

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Accepting payments on the sale of real estate might have made sense at the time, but circumstances change.

Many sellers discover they would now prefer cash today rather than the small amount that trickles in each month.

Here are just a few reasons people have sold all or part of their seller financed mortgage notes for cash:
 

  • Retirement
  • Taxes
  • Investment Opportunity
  • Expensive Medical Care
  • Vacation
  • College Tuition
  • Unexpected Financial Changes
  • Peace of Mind – no more worrying if the buyer is going to make late payments or having to foreclose
  • Accounting headaches, IRS regulations, paperwork hassles and the list goes on…

 
The only way to decide what is best for your situation is to know the options available.

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