Private Hard Money Lender in California, Texas and Arizona: How to Earn More and Work Less with Note Investing

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Saturday, October 10, 2015

How to Earn More and Work Less with Note Investing

Whether you know it or not, you are probably already involved in note investing but on the wrong side of it. Investing in notes is the process of buying debt in the form of credit cards, student loans, mortgages, or car loans. But instead of making payments, you collect payments from the borrower, which include a higher than average interest rate.

Many investors think that note investing sounds too good to be true, or may even think it is a scam. This could not be further from the truth. Note investing is simply the process of purchasing debts that borrowers owe. Once you purchase the debt, you earn interest each month until the debt is paid in full by the borrower. This interest can range anywhere from 3% on a mortgage note to well over 15% on a debt like a credit card. The interest rate is not subject to changing market conditions so you earn the same rate over the life of the loan, which can be anywhere from a few months to 30 years, depending on the terms of your investment.

While there are many types of note investing like credit cards or car loans, there are some specific advantages that come with investing in real estate notes. Investing in notes that are tied to the real estate market is very similar to trust deed investing. Basically, you purchase a mortgage debt from a bank. The bank benefits because there is less of a risk of loss in the case of default because it has capital from you. You benefit because you can now start earning the interest that is paid by the borrower each month. While this may be a relatively low rate, it is usually a high payment due to the amount of money involved in the transaction. You can earn hundreds every month compared to a credit card note which may have a higher interest rate but generally a lower balance so the monthly interest payment is less.

Higher monthly payments makes real estate note investing one popular way to start investingin notes is to invest in real estate notes. In this situation you basically buy a promissory note that is part of a mortgage. You hold the note and earn interest. You receive payments each month until the mortgage is paid in full and then you get back your initial investment. You don’t have to work for your payments, you sit back and let the cash flow in.

Risks and Benefits of Non-Performing Notes

Real estate note investing also has an extra opportunity for smart investors to earn high returns, non-performing notes. A non-performing note is exactly what it sounds like, a debt that is currently not being paid. When a mortgage is not being paid, the bank has two options, foreclose on the property or sell the note to an investor. While several years ago foreclosure was the first choice, many banks are now opting to sell non-performing notes.  By selling the note rather than going through the expensive and sometimes drawn out process of foreclosing, a bank stays out of the chain of title, doesn’t become liable for the property’s environmental conditions and doesn’t have to worry about ownership issues. The sale of non-performing notes is a cheaper alternative to foreclosure.

Once you own a non-performing note, you basically fix up the note the same way you would fix up a property. You can renegotiate the terms of the note with the borrower if you goal is long term monthly payments and interest earning. Or, if you would prefer to own the actual property that you hold the note on, you can foreclose on it and take possession. From here you can rent it out, fix and flip it, or hold onto it until it appraises for the amount you want to sell it for. Regardless of which avenue you take, you will make a profit on your non-performing note.

The greatest risk with non-performing notes is that you will lose money during foreclosure. You can help make this less likely by knowing all the laws related to foreclosure in the state where you own the note. Make sure to take into account any extra expenses the foreclosure process may entail.

Call us today to get started with note investing and non-performing notes!

At Level 4 Funding, we specialize in alternative investment strategies like investing in notes. We can help you through the process to help you start working less and earning more!

Dennis Dahlberg
Level 4 Funding LLC
Arizona Tel:  (623) 582-4444 

Texas Tel:     (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

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