You Can’t Own Half a Stock, But You Can Own a Partial Note and Make Big Money
Most homeowners do not own their homes free and clear. Those homeowners are making payments every month to somebody—and that somebody could be you. Most real estate investors assume they have to buy a property as their investment. But you can invest in mortgage notes—with much fewer headaches. One way to do that is with a partial note purchase.
What are the Advantages of Owning Notes Instead of Properties?
One of the best things about owning the note instead of the house is that the homeowner has to pay taxes, insurance, and repairs. If you rent it to tenants, you have to deal with the three T’s (tenants, taxes, and turnover), not to mention midnight calls to fix a leaky roof. Even if you have a property manager that takes care of those things, you can get surprise invoices, tenants who trash their units, plus the eviction process and costs.
Not all mortgages originate from traditional banks. Many properties are financed through private investors or financed by the seller of the property.
Private mortgages are created for many reasons. For example, many eager home buyers can’t qualify for a traditional mortgage even though they’re well qualified. Many sellers want to defer paying taxes on the sale of their property, so they agree to let the buyer pay them out over time to create monthly cash flow.
After several years, these note owners sometimes decide to sell the note they’ve created for a lump sum payment. Smart investors are always on the lookout to buy seller-financed mortgages. American Note Capital buys first-lien notes with good pay histories, that are in good neighborhoods, and have low loan-to-value ratios. Typically, these notes have 30-year terms with approximately 27 years remaining. Buying a “seasoned” note is important because it establishes the borrower’s payment history. These notes make solid investments for investors wanting to diversify their portfolios and avoid stock market volatility.
You Can Own the Entire Note, or Cut the Risk by Owning a “Partial Note”
When investors don’t want to buy an entire note, they can buy a “Partial.” Note Partials often have 10-12-year terms, are lower risk, and require less effort on the investor. When an investor buys a partial, they get 100% of the cash flow for an agreed period. The note is assigned to them for a specific term. After that, the remaining payments revert to the seller, who makes his profit by retaining the “back end” of the loan.
There are several advantages to buying a partial note:
- Investors get truly passive, consistent cash flow every month.
- Note investments are an excellent vehicle for preserving capital.
- Low loan-to-value notes provide a great deal of security.
- The seller (who owns the back end) has the responsibility of managing the asset.
You Monthly Income Doesn’t Decline if the Property Value Shrinks
Some economists think that a recession has already begun due to the COVID pandemic. Even though property values will decline, a note holds its full value. The loan amount or monthly payments aren’t reduced because a property’s value decreases. The property owner loses value, but the note owner still gets paid the same.
For more information regarding investing in mortgage notes, you can schedule a phone meeting by clicking HERE, email us at email@example.com or call us at 800-508-5212. We look forward to hearing from you.