• Collecting the Check
As the new owner of the note, you may now take over receiving the monthly payments due, which include the principal and interest until the borrower pays off the loan. You just have to keep accounting, receiving payments, send out monthly statements, and make sure that taxes are paid.
If you want to make this performing note a passive investment enterprise, there is always the option of hiring a professional servicing company such as Iserve and FCI Exchange who will do the note servicing functions for reasonable fees. It usually costs around $150.00 for initial set up and $15 per month for each loan.
The main risk for a note investor is when the borrower is unable to keep up with their mortgage payments. This is when foreclosure takes place.
A foreclosure is the repossession of the property in the event that the borrower stopped making loan payments. A good way to illustrate this is if both parties agreed to a payment structure and the borrower loses their job and is no longer able to keep up with their payments. Many investors are afraid of foreclosures because the net sales proceeds of the foreclosure sale may not be sufficient to cover the balance, so they may end up with a loss.
The good news is, foreclosures happen in less than 1%-3% of homes, depending on some regional and economic factors. This means there is a minimal chance of having a foreclosure. Also, foreclosures often result in greater returns depending on the property’s value. You can also avoid foreclosures by helping and working with the borrower through payment arrangements or other temporary solutions.
There are plenty of reasons why note owners might decide to sell their notes. Whatever the reason may be, they want or need a lump sum of cash now rather than waiting for a long period of time. These investors usually say, “a dollar today is worth more than a dollar next year.” They are thinking about the time value of money and will then work out the best exit strategy. Selling the notes to other investors or companies and selling to the right people is key. When doing this for any reason, you still want to gain as much profit as possible.
When you start investing in mortgage notes, you should study up on the subject and then connect with someone who is knowledgeable and has actually bought notes with successful profit. Unless you are bringing viable notes to the investor, of course you would need to pay a few hundred dollars for their time and expertise. It is always best for new investors to start with a few small notes to see if they are comfortable with the business. While you do this, you will learn, gain experience, and build a good foundation for your business. In time, you will become an expert note buyer and enjoy all the fun and rewards that come with it.
Note buying is the perfect strategy for today’s passive investors. If you do this and hire a servicing company to do all the work for you, it can be a hands-off investment that gives you a consistent monthly income.