Mortgage Note Buyers, Who are they and How can they help You?
To understand what a Note Buyer does you need to understand “Owner Financing” also called “Seller Financing”
What is Owner Financing and Why it is Crucial to Understanding the Role of a Note Buyer?
Owner financing is an important aspect of the note buying industry and must be understood in order to fully understand what the role of a note buyer is.
When an owner/seller puts their property up for sale with themselves acting as the financier of the property, rather than a banking institution, they are called a note holder. Instead of traditional bank lending, a home buyer pays the seller a mortgage because the seller acts as the lender themselves. This has numerous advantages to owners seeking to sell their property as well as home buyers looking for less restrictive options.
The advantages of owner financing are shorter length of time the property sits on the market, fewer costs including closing costs, reduced restrictions of home buyers (e.g., bad credit, income restrictions), installment sale tax deferral, secure asset for the note holder, liquid asset for the note holder, a means of passive income to the note holder, the ability to sell the mortgage note to a note buyer as a liquid asset, who will then receive the future mortgage payments of the home owners and act as the financier.
What is a Mortgage/Real Estate Note Buyer?A note buyer in the real estate/mortgage industry is an individual or company that buys a mortgage note from a note holder (e.g., a property owner who has sold their home via owner financing and is acting as the “lender” and is financing the individual(s) who bought their property). These note buyers are called mortgage note buyers or real estate note buyers, and they are working the real estate niche in the note-buying industry.
The note holder (the seller who sold their home via owner financing) can sell their mortgage note at any time. This is where the note buyers come in. Note buyers are the investors who take over the future payments (e.g., the mortgage) that would be paid to the note holder who finances the buyer of the property. The note holder decides if they want to sell, and if they do, they connect a note buyer, who offers a fair lump sum deal; and after the transfer of the deed, documents, and disbursement of money has been completed, the note buyer then becomes the financier, and will accrue the payments and interest of that mortgage over time. This is how note buyers make a profit.
What Part of the Cash Flow Industry Does Note Buying Fall Under?There are different areas of the cash flow industry such as Factoring Receivables, Insurance Based, and Private Notes.
Note Buying falls under Private Notes and can be explained as the following:For individuals or other entities that provide debt financing in real estate, business, or other assets can convert their future payments due on a promissory note into immediate cash.
Note buying is the conversion of future payments due, into immediate cash for the note holder, in return for the note buyer to obtain the entire amount that will be received during financing of said entities, in the future.
Benefits to Being a Note BuyerThere are various benefits to being a note buyer. Sound and relatively risk-free investment is one of them. Once a mortgage note is bought, that note buyer is then the financier of the individuals staying in the home or property in question.
Should the individuals who bought that home not make their mortgage payments to the note buyer, then the note buyer can take back full ownership of the home. This is an example of how note holding and buying is a secure asset. The balance of the purchase price is collateralized by the property itself, rather than a banking institution. This allows a mortgage note holder (or a mortgage note buyer who purchases from a seller) to take back ownership of the home in cases of non-payment. For the note buyer, this would give them the option of selling the home and pocketing all of the profits.
Another advantage of owning a note is that it is a liquid asset that a note buyer can sell whenever they want. However, being the ones to initially buy that note from a seller, they would only profit if the market value increased on the property; enough to make a monetary profit off of a sale of the note. However, this is not usually a problem, because note buyers do not sell until they have profited from their buy.
Passive income is also great advantage for a note buyer. Not only do they collect the future mortgage payments and interest from the home owners they are financing, but this interest constitutes as passive income and is gained every month in the form of steady profit. The home owners find themselves paying their financer (the note buyer in this case) 3 to 4 times the amount in mortgage payments versus the amount they would pay if they had a traditional banking mortgage. This allows the note buyer to receive passive income without doing any extra work.
Like the real estate market, being a note buyer is a job in which the individual must make purchases quickly or else risk losing the buy to someone else. Note holders generally have a value range that they buy in and do not exceed, so when offers to buy come in, they have a narrowed-down list of properties that they can buy from the note holder. They also seek out note holders via note brokers or active marketing.
In terms of employment and workplace, being a note buyer also allows one the freedom of flexible working hours, working from home, dealing one-on-one with note holders or using a note broker, making a profit with each buy, earning passive and steady income, and the growth opportunities available. With a positive reputation and experience in the industry, a note holder’s income and/or company can continue to grow and receive offers from trustworthy and verifiable sources on a regular basis. They can also form relationships with note brokers who can bring business to them at the cost of the note holders, and not them personally.
Popularity and Recent Growth of Private Mortgage/Real Estate NotesIn real estate, sellers will often use owner financing to sell their property. This means that instead of banking institutions getting involved with mortgages and financing, the new buyer of a property pays the seller, who is financing the home themselves. The seller of the home in effect, takes the place of the traditional bank.
There are advantages to this practice: shorter selling times on the market, quicker closing, fewer costs, installment sale tax deferral, the maintaining of a liquid and secure asset, reduced restrictions such as lending requirements or credit scores of buyers.
In our economy, it is difficult to maintain a high credit score when so many people are living day-to-day. For those individuals or families who do not wish to rent and apartment or home forever, buying a home by owner financing, the restrictions that banks put up such as meeting a certain credit score, having a certain income, and other lending requirements, do not apply.
This leaves owner financing as a meeting of two worlds—over 50% of Americans are under qualified for a traditional loan due to meeting responsibilities in a world that is having economic difficulties. Due to this lack of representation in real estate, in 2012 the numbers of seller carry backs were up over 15%, which is no surprise. There was a niche in the marketplace and the note brokering industry took advantage of the needs of so many Americans.
Conclusion: Being a mortgage note buyer in the real estate market is an independent employment opportunity that many people do not know exists. By taking advantage of being able to pay a note holder a lump sum and take over as a financier of a property, the note buyer can continue to receive the mortgage payments with interest from the home owners under his or her financing, take back full ownership of the home should the individuals stop paying the mortgage, and can earn passive income right off the bat when purchasing a mortgage note.
While it takes time for the buy to pay off (the moment that the buyer earns more than the amount of the lump sum given to the previous note holder), when it does, the note buyer can continue to accrue interest or sell the home at full price. This is especially great if the property value increases by that time.Being a note buyer takes dedication, quick responses to queries and offers, and a learning period. Most individuals start out with becoming note brokers before going into business themselves as a note buyer. There is a lot to learn, but once one has the experience and know-how in this industry, being a note buyer can be a form of lucrative income once all of the buys start paying off.
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