Even beginners can take their first step into the world of real estate investing through the reasonably easy to open door that notes offer. Do not overlook the opportunities that notes offer investors for diversification to achieve a well-balanced portfolio. Notes or promissory notes in real estate are, in essence, an IOU to the lender from the borrower and are bought and sold on the open market, much like stocks. Remember, however, that notes represent ownership of the property, for which you will hold the first lien position. You are still buying real estate, so you should still perform full due diligence on the investment.
As with typical real estate investments, note investors have a myriad of options for investment strategies. Read on to learn more about why note buying in Southern California is a niche strategy you should know.
Banks focus on originating the loans or mortgages, as this is a lucrative process. Banks tend to make profits on the loan processing and may collect payments for six months to a year and then sell the note, or promise to repay, to another bank. Borrowers are then notified the lender sold their note, the terms all remain the same, including the payment amount, but the payee instructions are updated. Individual investors may also sell their notes to individuals much in the same way. It is important to note that each time a note trades, it is sold at a discount, meaning the monthly cash flow profit increases for those investors focused on note buying in Southern California. Because you buy notes at a discount or pennies on the dollar, there is an innate potential for a higher return on your investment.
No Landlord Duties
There are two types of notes you can purchase, the first of which is a performing note. In other words, the borrower is making timely payments, and the note holder can rely on the monthly cash flow. Unlike flipping, where months of work and a great deal of hope goes into finding the right long-term tenants or buyers, you will not have to concern yourself with the dust of construction crews, nightmare repair jobs, or contractors running over their deadlines and causing chaos. When you invest through notes, investing in real estate does not always have to include the typical role of landlord and tenant. Note buying in Southern California is an incredibly passive investment with the benefit of skipping all the headaches of maintaining a property. You will not be answering any calls about broken plumbing during the middle of the night. You are instead acting as the bank.
The second type of note is the non-performing, which sells at a steep discount, possibly lower than 25 cents on the dollar. Even writing a check is an example of signing a note or making a promise to pay. When an establishment encounters a customer using a check as payment, the first step taken is to verify the check writer by whatever means possible to ensure the reliability of the paper. Secondly, the balance of cash in their checking account acts as security for the payment. However, unlike a check that may be forged or may bounce, real estate notes are secured with collateral. Again, if your borrower is not paying, you can work with them on a loan modification, among other options. Naturally, should the borrower be able to pay off their note, you benefit financially. Even if things do not work out well with the borrower, do not worry. Either way, you come out a winner. Because real estate holds value, note buying in Southern California means you could sell the property and recoup your investment if the borrower fails to make their payments.
Individuals who find themselves in distress can also sell notes, and if you are so inclined, you could purchase the note to help the homeowner stay in the home. Many investors in Southern California find assisting others through their efforts to be a rewarding benefit in and of itself. As there is still a discount in buying these notes, your charitable efforts are affordable, as the note will still be quite profitable. While the homeowner may need to refinance or make other changes, they will save their home, and the investor, while earning a profit, will have the positive experience of helping their neighbors through the process of note buying in Southern California.
Are you interested in note buying in Southern California? Your team at Golden Dog Properties is a diversified group of highly regarded professionals with experts in every facet of real estate. The pros at Golden Dog Properties know what to look for in notes and the winning formula investment for your real estate portfolio. Why not let Golden Dog Properties help you find the best performing or non-performing notes available? Contact Golden Dog Properties today at (805) 257-5780.