Real Estate Notes

The Real Estate Note buying business:

There is a less popular type of Real Estate investing that I almost don't want to get into here referred to as " real estate note buying." This involves real estate notes. It is much more risky than the three traditional types of real estate investing and has very little in common with them, but technically it is within the realm of Real Estate investing.

Have you ever seen one of those "fast-cash-for-your-car-note" businesses? Some small business offer cash for your car note, charging an outrageous interest rate until you pay your loan off. I've seen rates as high at 38%! Even worse, if you don't pay off within a certain time, you'd lose the car entirely!

Basically, Note Buying in Real Estate is the same thing, albeit slightly less evil, and you or your real estate investing group can offer a high-interest loan to some poor shmoe needing fast cash that can't get a loan from his bank. Obviously, the risk involved is hefty. To be done right, as much care should go into each real estate investment decision as a bank's whole mortgage loan application and appraisal process. In fact, some lenders are starting to fill in this void and offer these types of loans themselves, so fewer and fewer of these opportunities exist all the time for private real estate notes investors. If you can professionally weigh the risks of such an opportunity, also consider the following. With each and every Note you bought, one of four things will happen to it:

1. The real estate note will run the course, and you've made between 10% and 20%.
2. The real estate note will be refinanced, you've made much less, depending on how long it took them.
3. The buyer will default on the note, or the real estate note will be foreclosed, you will have to evict the ex-owner and then you'll have the property back. Since this is a strong likelihood in most cases, you should only buy properties that you are willing to own and look after personally. But if this does happen though, you're yield just went through the roof!

Real Estate Note Buying Yield

When real estate notes are foreclosed because the buyer default on them, the yield on the real estate notes usually sky-rockets, rising from 10%-20% to 150%-300%. This is because you would then own the whole ownership of the property with all the extra equity on top of the real estate notes. At that point you can then sell the property for quite a large profit! The possible payoff is huge, however a capitol gains tax will be imposed, and of course evicting someone from their home is never a pleasant experience.