“I’d rather grow my real estate investments for the long term.”
What are the different reasons non-performing mortgage notes can build your wealth?
In today’s market, there are simply too many non-performing loans for the lenders to effectively resolve them relying on the same old processes. Lenders are not as adept at quickly adapting to market forces resulting in trillions of dollars in non-performing notes waiting for resolution and it is growing much faster than the lenders can handle. The growing trend for resolution is the direct sale of the non-performing note where the lender simply decides to let someone else deal with the problem and significantly profit.
Profitability
Non-performing notes bought at a discount can even exceed today’s Private Money mortgage yields that can range from 8%-18% plus discount points. So just like a standard real estate purchase, you make more money when you buy and you can make even more profit when you rehab the note (just like rehabbing the property). The reason there’s such a high probability of achieving superior returns with notes is that they can be purchased at a DISCOUNT. When purchasing notes at a discount, you make your money when you purchase. Your profit is derived from the banks’ inefficiencies. You don’t usually make money off the borrower’s equity
Equity
With a mortgage note, you have a lien that is secured. Risk is relatively moderate, especially with potential equity to protect the mortgage. “I’d rather have equity with a bad loan than no rent from a bad tenant. Mortgage notes with a 30% – 40% equity cushion are a safe and highly collateralized investment.
Stability
Notes tend to be easier to manage than real property. As an investment, non-performing notes are more passive. Banks and financial institutions do not get calls about plumbing leaks. Location is less critical when owning a note. It’s easier to own notes in areas that you might not want to buy and hold real estate, especially short term. There’s often less liability and responsibility with owning notes. With notes, not only do you tend to avoid issues with vacancies and maintenance, but you also don’t need to deal with tenants, contractors, and townships.
Scalability
A note buyer can manage a larger volume of loans than properties. Loan counselors can manage as many as 10-25 loans per month. How many properties a month can a real estate investor handle? 10-25 a month would be hard to handle.
Loan Servicers are more affordable than real estate property managers. Property managers can be anywhere from 8-10% of gross rents, sometimes lower if given a large number of units and they often charge one month’s rent to find a tenant. Loan Servicers, on the other hand, have a one-time initial charge of @ $30-$168 or so, and monthly fees can range from $20 – $35/month.
Want to Learn More About Investing in Non-Performing Notes?
GET THE FREE NPN GUIDE!
Get this free mini-course in mortgage note investing and learn to retire early with plenty of surplus Income.