Sellers usually offload notes for the "Three Ds": They might need cash for a medical emergency, a new investment, or they are simply tired of "clipping coupons" and want to exit the management of the debt. 6. The Risks
Are you looking to notes for a commission, or are you interested in buying them for your own retirement portfolio?
Buying and selling "notes"—specifically real estate mortgage notes—is the "invisible" side of property investing. While most people focus on the physical structure, note investors focus on the . When you buy a note, you aren’t buying a house; you are buying a legal promise to pay, effectively stepping into the shoes of the bank.
Even if the note is for $100k, if the house is only worth $80k, you are "underwater." Note buyers look for a "protective equity" cushion.
If you buy a "second" mortgage and the "first" mortgage forecloses, your investment can be wiped out completely.
The borrower has stopped paying. These are bought at deep discounts (often 30–60 cents on the dollar). The strategy here is "workout" or "liquidation": you either help the borrower re-perform, or you foreclose and take the property for a fraction of its market value. 3. The Power of the "Discount"
In physical real estate, you check the roof. In notes, you check the .
If you buy that note for $80,000, your isn't 6% anymore—it jumps significantly because you paid less for the same cash flow.