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Non-Performing Note Investing 101: Understanding the Basics
If you invest in real estate you've probably heard about this "new" investment strategy; Notes. Over the past few years, investing in Non-Performing Notes (NPN), has becoming increasingly well known. The recent surge in popularity is due to current market conditions. You can read more about why the current market lends is self to such success in buying non-performing notes by clicking here. Although this concept is new to some investors, note buying and investing has been around for decades and is really not that "new" at all.
I often find myself reading various posts from assorted blog platforms, social media sites, and company websites discussing different topics involved in note investing. There are numerous articles on the benefits of note buying, the risks involved, and topics such as "the top 10 things to know before buying notes", but amongst those great articles I struggled to find a post that did a good job of explaining note buying and investing in NPN's using laymen terms.
My company is a privately funded investment group that works with individuals looking for a higher return on investment. Some of these individuals have never invested in real estate before, and because of this I've had to develop an "easy" way to help our partners understand and feel comfortable with investing in non-performing notes. Now that I've built up my experience, I wanted to share the basic process of investing in non-performing notes and some of the common questions or concerns I encounter in a manner that anyone can understand.
Now I know this is a simplified 101 Guide and there are a lot of caveats to this industry that a "new" investor needs to be aware of. I suggest that any interested party work with someone who is experienced and well versed in this area of investing before venturing out on your own. As I said before, the process outlined below is what I typically use when I meet with private individuals who are interested in working with our company, Seasoned Funding, LLC. There is a lot that goes into buying a NPN that can positively or negatively effect your experience in this industry and if you are not knowledgeable and prepared you can easily end up losing money or worse, your investors money.
With that being said, and without further adieu:
The 101 Guide to Non-Performing Note Investing!
What is a note?
A promissory mortgage note is a signed document that stands as a promise to pay a specific mortgage loan. This document outlines the terms, dates, and requirements to fulfill the promise.
This is one of the most common areas of confusion for someone starting out and the answer is NO.
Why buy a mortgage note that isn't paying?
This is a customary question I am asked after explaining what I do and I love getting the opportunity to answer this question.
My answer is simple; "Because buying a mortgage note that isn't paying allows me to step into the shoes of the bank and find a more creative solution than a commercialized formal institution ever could. Sometime this means I modify their current loan and get them repaying, and sometimes this can be relieving them of their debt by getting a Deed In Lieu of foreclosure or through the foreclosure process itself."
I also love adding the fact that I'm able to acquire these non-performing notes or assets for a deep discount, typically 35 - 55 cents on the dollar, leaving an enormous margin of profit no matter what my exit strategy.
If you found this post informational stay tuned for Part II of Non-Performing Note Investing 101: Coming Soon!
Comments (1)
Thank you for great information Liz.
Cudn't find part 2. Can you please share the link ?
Eyan Lakhani, about 8 years ago