Buying non-performing notes to purchase real estate

[John Havel]

Recently heard about buying mortgage notes and it got me thinking about potentially using this strategy in the future for acquiring real estate. Anything you can tell me about this especially in the case of non-performing notes would be extremely helpful in my education on the topic. 

The main thing I would like to know currently is how the process would work in the case that you buy a non-performing note and foreclose on the note. Lets say your goal in buying this note was to acquire the property at a discount for a buy and hold rental situation.

If you own the first lien but there are other liens on the asset and instead of selling the asset decide to keep it are you as the new owner now on the hook for the other liens or is the person who the liens were against on the hook? 

What if you are a second lien holder and foreclose how would that work if there still exists a first lien?  

Is it even possible or worth it to foreclose on the property in this case? 

What other pitfalls might there be to be aware of in this investment strategy?

Again any information would help immensely.

John Havel

[Jamie Bateman]

@John Havel, I have some helpful resources and more information on my website (primarily found in the blog posts, most of which I have also posted here on BP) but @Chris Seveney's podcast and website has a lot more information, to be honest. The most clearly written book I have read on note investing is @Joshua Andrews book "Paper Profits" but there are certainly many other quality books about notes. There are so many niches within this niche that it is impossible to put out one book to address everything. I would go back through the previous forums here and just read them. There is a ton of value right here, mostly from investors who have been doing this a lot longer than I have.

To address your question about geography, many note investors target specific states and some target only local deals. Obviously, this limits your options from a supply standpoint but I do recommend not casting too wide of a net location-wise, at least at first. There is a lot to learn regarding each state's laws when it comes to licensing, foreclosure, etc. And like Chris said, there are many associated risks to be aware of. It is not as easy as many of the gurus portend. 

With all of this said, don't let us discourage you. There will undoubtedly be opportunities in the next 6 to 18 months to find note deals that you could turn into cash-flowing rentals. Or you could go the other direction, find a great deal on a property and then create a note for yourself. The fact that there are so many options and strategies in this space is one of the reasons I really enjoy it.