New to Notes - Knowledge Check

[Anthony Antonacci]

Hi Everybody,

New to the world of REI and especially the concept of buying notes. Have dove into some reading here the last week or so and wanted to check for understanding on some key concepts and lay out some questions...hopefully this helps some others, too. Thank you in advance.

Notes in General

1. What is the difference between 1st/2nd position and what implications does this carry for an investor?

2. How can an individual investor who is unable or unwilling to buy notes solo get into owning notes? PPR and other services a route?

Performing Notes

1. If these notes are performing, why would someone be selling them at a discount? Are performing notes more commonly acquired through owner financing? How do you locate these deals?

2. Can someone explain the interest to be reasonably expected in a performing note? If it is a residential loan at 4%....is this your rate of return? 

Non-performing Notes

1. Strategies are to a) restructure and make performing (to hold/collect or sell note later) or b) foreclose and secure the property for sale. Can someone provide feedback here and/or expand upon this?

2. Certain states are more favorable to purchase these correct? I am in Illinois which has a very long foreclosure process as compared to Texas. Would it be less ideal to buy non-performing notes in a state like IL?

3. These are often bought in bulk by large investment groups...what kind of quality is out there for a small, individual investor? 

4. Do you get to set terms for the borrower when you take over the note? For instance, late penalties, etc.

Thank you!

AA