There are a number of ways note investors and note brokers buy and sell notes. Note Investor buy notes to add to there portfolio of investments and build there cash flow income stream. Note Brokers buy/sell or broker notes to other note buyers for a spread or commission. Most note investors broker notes as well as keep note for themselves, as no investor has unlimited funds.
Note buyers have different buying requirements, some only buy single family home notes or mobile home note some only buy in a certain state. If you are going to buy notes for yourself you need to decide what your buying requirements are. Small notes or note partials are ideal for your IRA (Individual Retirement Account) large value notes might to big for and would be better brokered to a large note investor or even a bank.
Types of Notes That Can Be Bought
- Real Estate Notes
- Commercial Notes
- Private Promissory Notes
- Seller Financed Notes
- Non Performing Notes
- Business Notes
The main type of notes most note investors buy are real estate mortgage notes they are either private mortgage seller financed notes or non performing notes that banks sell. For many years seller financed/owner financed notes where the main marketing for investors to buy notes in but after the mortgage meltdown of 2008 many non performing notes became available to buy.
If an Investor is looking at buying non performing notes then he should talk with banks and hedge funds that have pools of non performing notes. Investing in NPN’s (non performing notes) is both high reward and high risk, he should seek expert advice before investing your hard earned cash in these type of notes.
How To Find Real Estate Notes for Sale
For many years the only way to really find notes to buy was to get a list of note holders and send them direct mail letter and offer to buy there note. Other low cost method to find note sellers include ads in local newspapers, pennysavers, thrifty nickel and networking with realtors who may be in contact with people wanting to sell there notes.
Finding Promissory Notes for Sale Online
This is where most modern note buyers will start there efforts to buy real estate notes. There are several ways to buy notes online both free and paid.
Free Methods to find notes
Scouring craigslist to find seller of promissory notes
Networking with realtors and mortgage brokers who deal with owner financed properties and tell them you are a buyer of notes.
Contact note servicing companies and tell them you are a buyer of notes. Companies that services are in contact with many thousands of note holders, they can be an amazing source of notes for you.
The most powerful method we use to find promissory notes online is search engine optimization, basically this is optimizing your website for search that note sellers are using in Google and Bing.
There are several ways to leverage SEO/ Search Engine Optimization for finding a private mortgage loan or promissory note. There is Local SEO which involved optimization your website and Google My Business Profile for local searches related to note sellers. Youtube is another online asset that can be utilised for finding notes, video is very important SEO asset and should be considered in any online effort to generate leads for notes and mortgages.
Organic Search Results for ‘sell my note’
Paid Methods for find note sellers online
Using Google Ads or Bing Ads is a very powerful and fast way to generate leads for notes
In the results above sellerprivate.mortgage,fnacusa.com and boston note are note investors or brokers, rexchange might not have optimized there ads correctly
Bing.com search Results
Once you find a note you might want to buy then the due diligence begins. The following list is a good start point for your due diligence checklist.
- Street Address, City, State, Zip
- Estimated Value when sold
- Current Property Value
- Property Type
- Occupied or Vacant
- Tax and Insurance Information are the current
- Pictures of the Property, use Google Earth
- Copy of Title Policy
- Current Title Search, does the property have any other lines
- Title of Mobile Home Title (if note is on a Mobile Home)
- Property Description
Note Information Checklist
- Original Note Amount
- Current Note Balance
- Down Payment when Note was Originated
- Interest Rate
- Note Payment
- Number of total payments
- Date of 1st Note Payment
- Number of Payments Made
- Balloon Amount
- Ballon Due Date
- Payment History
- Position of Note 1st, 2nd etc..
- Is the Note Dodd Frank Compliant
Security Instrument Information
- Trust Deed
- Contract for Deed
- Land Contract
Note Payor Information
- Date of Birth
- Credit Score
- Employment Status
- Other Income Sources
A Simple Promissory Note Example
A piece of real estate sold for $180,000 with a $30,000 over 120 months with an interest rate of 5%.
Payments would look like this
PMT: = $805.00
After 30 Payments, the note holder decides to sell his/her note, current note balance is $144,157.00
The Note Investor Buy want a yield of 12%, the note will have to sold at a discount
PV: Price to Yield 12% (We solve for this value) $77,481
I: 12 (Our Desired Yield)
So the Note Seller would have to take a large discount to get his money. The time value of money comes in to play here in a big way. It is generally a bad idea to buy notes that have long terms, 30 year notes are better bought by banks and institutes. Private investors are better off buying notes with 7 or less year terms.