Note investing is one if the easiest ways to profit in real estate
Fellow Gentrifanatics!
Thanks so much for being here!
Everyone gets the concept of making payments. Shifting your mind to receiving payments on notes is a game changer!
I bought my first car as soon as I graduated bootcamp. It was a 1997 Nissan Altima…and it was sweet!
Sticker price for that car was 10k and I paid every single penny of it!
Come on, it had shiny wheel covers and mirror tint. It was a gem!
My note on that car was about 150 a month.
I got a loan from Navy Federal Credit Union and they carried the note for the car.
Navy Fed loaned me that 10k and charged me interst for their trouble.
Only recently did I realize that I could do the same thing!
So can you!
In this post you’ll learn about what notes are and how you can use them as a passive income stream!
What Is A Note?
A note is a promise to pay.
Think about my sweet 1997 Altima!
Navy Fed gave me 10k for the car and I promised to pay them back with interest.
Technically they gave the 10k to the car dealership. Then Navy Fed owned the car and I kept the car, then paid them every month in order to keep the car.
Pretty good deal for Navy Fed!
They didn’t want a 1997 Altima, but they did want that interest that they were earning off of me every month.
Also if I didnt pay them then they could take the car, keep all the money I had paid them, and sell the car.
I didn’t have my own 10k to buy the car so Navy Fed loaned me the money as long as I promised to pay them back on their terms.
Shifting Mindset
Remember mindset is everything!
Go back and read my very first post,
Changing Your Mindset
When it comes to notes you can be the bank!
Investing in notes means that you can own a promise that someone has made to pay.
You can apply this to pretty much anything…cars, houses, credit cards, student loans, structured settlements.
Look at JG Wentworth!
It’s my money, and I need it now!
Their whole marketing strategy is to get people who are getting long term payments for something to take a lump sum from them and then pay it back.
If you get hurt in an accident sometimes the person that hurt you has to pay you a large sum of money over time.
They were forced by the court to promise to pay you that money.
JG Wentworth gives you all the money you’re owed up front but makes you promise to pay them back over time with interest.
It sounds complicated because it is….which means there is plenty of opportunity for those willing to put in the time and effort to learn.
Notes are a bit easier to understand through the real estate lens.
Real Estate Note Investing
If you own a house your mortgage payments are a note.
Note investing in real estate means that you become the person that someone is paying mortgage payments to.
You become the bank!
When you buy a note on a house you dont own the house, the owner of the house has to pay you in order to keep owning the house.
Like anything some people pay and some people can’t or won’t.
Performing vs Non Performing Notes
A performing note means that the home owner is paying their mortgage on time.
When you buy a performing note you become the person that the homeowner pays until the house is paid off.
A non performing note is….
You guessed it! When the home owner isn’t paying their mortgage.
When you buy a non performing note it becomes your responsibility to get the homeowner to pay their mortgage.
If you have any note and the homeowner isn’t paying, remember, you are the bank.
This means that you can go through the foreclosure process and take that house from them if they don’t pay.
For ethical and good hearted investors this is a last resort.
Luckily, you’re the bank so you can help people stay in their homes. You can modify the terms of the homeowners payments.
Often this can make it easier for them to remain in the home and you’re getting paid!
Example
Ok, so here are some simple numbers to put everything into perspective.
You find a note that you can buy for 40k.
It’s a non performing note so the homeowner isn’t making their payments.
While researching you find that the house is valued at 80k.
You purchase the note and get in contact with the homeowner.
They tell you that they can’t afford their $600 per month mortgage payment.
Many options can be put into play.
Lowering the homeowners payments to 300 per month is possible. If you lower the payments you can also negotiate the owner to give you a chunk of cash in good faith.
If all else fails you have the option to foreclose which means you own a property worth 80k and you only paid 40k for it.
Having multiple exit strategies is one of the best benefits to note investing.
Wrapping up
Obviously the example above is over simplified and each scenario is different.
Remember, a note just means a promise to pay.
You can either be the person paying or the person getting paid!
For more information on notes and where to go to buy them feel free to reach out!
I’d be more than happy to chat with you!
