The purpose is primarily to increase one's investment yield.
As an investor, this becomes a forth level profit center.
As a consumer it is a good option for replacing those saving accounts with 1% interest payments, CD with 2% interest payments, and easily reach 8% without trying. This is PERFECT for self directed IRAs. You should be looking for seasoned 8%+ notes.
Here is how I do it.
Any home loan with private lending, generally in second position, is a note that can be purchased. An investor just selling a cash flow, multi-unit property, for example, will very likely be looking for a 24 month place to park their assets until they are ready to buy new real estate. They money is currently in a holding situation with a zero or 3% yield. This is your note buyer.
Locate a note holder, public record, receiving interest greater than 8% and strike a deal for them to sell the note. Position yourself as a DISCOUNT note buyer. A discount note buyer...that's really important. This is the note holder , owner or seller.
The 'buyer' will purchase the note at face value for the increase in interest they will receive.
That's really, really simple. That is also the beauty of the whole affair. Be aware, there are unlimited variations in the ways this can play out.
There's clearly much more to know, but, keeping it simple, that is it in a nutshell.
Kenny is right. You really need to know what to look for in a note. Hence, I avoid buying notes at auction as I'm not comfortable diving into that deep end just yet.
Then, it's the wild west of seasoned notes on the secondary market. There's no free lunch -- you're accepting a difficult to quantify risk of default to get up to 20-30% returns.
Instead, I prefer to generate my own pipeline of notes with my primary investors. Since I handle the real estate transactions, I personally get to know the quality of the underlying property and the borrower/buyer.
You need to have pretty good working knowledge of ant-deficiency and trust deed laws. If you don't know about the full credit bid rule, you might want to read up about it. It is critical. I once represented a client who was an avid investor on notes and he lost a ton of money because he had no idea what a full credit bid rule was. Of course now he knows all about it but that knowledge came with a big price tag.
First- When I worked there we required new investors to read the DRE Booklet. (link below)
Investors were required to sign a document they read this in it's entirety prior to opening an account: http://www.dre.ca.gov/pdf_docs/re35.pdf
Happy "TD" Investing- Rudi
If you can find notes yourself, then there's no need to use any note brokers. I only made that suggestion in case you don't have a ready pipeline of note deals. It really is quite interesting, since the underlying paper often pays better than holding title.
As Robert indicated, your primary note holder will be the individual who offered owner financing. On the public records website of your county this most likely will appear as Private Financing. Start your search there.
There are much easier ways, but not suitable for a public forum. (English translation: Trade secrets are not to be freely divulged)
Generally the notes that are purchased by small time individuals are private notes such as those made by sellers who carry back the financing. If they want to cash out, they sell their note and someone buys it from them for either face value of the note, or often at a discount which produces a much higher yield. Imagine buying a $100,000 note paying 6% for $70,000. Then eventually collecting the full $100k when that owner sells or refinances (plus the 6% a year the whole time). Nice investment.
* The terms include the interest rate, duration of payments, payment amount, due date of first payment, etc.
* A mortgage note is sometimes called a real estate note, a deed of trust note, or simply a promissory note â€” they are basically the same for most purposes.
* The note is the â€œI.O.U.â€ while the deed of trust or mortgage makes the property the collateral for the sale.
So for example i buy a note for 10k and the property is valued in 60k, if the borrower doesnÂ´t pay the monthly payment for 3 months then i go to foreclosure process and if a sell the house i get in return 50k or more. Or i can receive monthly payments including and additional interest rate the borrower has to pay me. I just found this site that i wanted to share with you all
http://fciexchange.com/ amazing rates and properties so far.
The process is as follows:
1) Receive a Quote
2) Accept the Offer
3) Sign the Note-Sale Documents (provided by the broker/note buyer) & Submit all Docs on said Asset
4) The buyer will then underwrite the deal (appraisal/BPO, title search, borrower interview, etc)
5) Deal will be approved, and funded (assuming it survives the underwriting process)
6) Deal is funded and the note seller gets their lump sum of cash and the buyer gets the payments on the note.
If you have any additional questions on the process or want to discuss how to create the most valuable mortgage note for resale to an investor, I suggest contacting our company to do so, as we are a direct and independent note buyer on the secondary mortgage market (http://www.AmerinoteXchange.com).
There are a lot of note brokers who have buyers who may be willing to purchase a note. Most notes that are sold piece by piece are seconds, or owner carries, much like those that are created with AITD's.
All Inclusive Trust Deeds are simple to set up, and are a unique strategy to purchase property while keeping the current mortgage in place. It is an eloquent solution to getting around the due on sale clause.