Real estate investors who are used to the fix and flip game often have a hard time wrapping their head around why non performing notes are something that they should spend some time looking into for their real estate investments. I’ve been buying NPN’s since 2007 and I truly believe that they are still the best investment for investors. Here are the three main reasons why I love note investing.
- First and foremost, we are all looking for deals! At the peak of the mortgage meltdown there were over 15 million homes underwater. As of today, there is still somewhere between six and seven million homes still underwater. If you add in the two to three million loan modifications that were performed where the banks only reduced the interest rate for a fixed period of time (that are now starting to default), that leaves you with around eight to ten million deals to tap into. So many investors are used to sending out postcards, yellow letters, working the MLS or door knocking for one deal from one source. I’d rather work smarter and reach out to banks and hedge funds that have hundreds of deals on their books that they are looking to get rid of. What would you rather do, tap into a continuous source or keep hunting for the next deal? Add in the fact that note investors are tapping into deals six to twelve months ahead of other investors by buying the distressed debt, and you’ll understand why note investors are tapping into great deals. The inventory is there while it’s drying up for those REO buyers who are waiting for inventory that is never going to show up.
- With us taking over the distressed debt when we buy a NPN, the banks are willing to sell these assets often at a steep discount. Depending on location, foreclosure time frame, market values, and condition of the property, you can often pick up NPN’s and control the underlying real estate at a steep discount. These steep discounts are often well below what a traditional fix and flipper or landlord will pick up a property at. With discounts ranging from 25 to 75 percent off of current market value, you don’t have to mathematician to realize that you better pricing often leads to a much higher ROI for you or your funding partners.
- Exit Strategies. Many “traditional” investors are looking to buy real estate for cash flor or to fix and flip for bigger pay checks. With NPN’s, you have so many options with numerous exit strategies. As a note investor, we are looking to rehab the borrower and not the property. You can wholesale notes, reinstate the loan, modify the loan, offer a loan assumption, short sale the property, offer a deed in lieu or cash for keys, get a cash payoff, or last but not least, or foreclose on the property. You can also sell off your note to other investors after doing some work on the asset or getting the loan to re-perform for a period of time. There are also several government incentivized programs for note investors that other investors do not have access to. Note investors often prefer to end up with cash flow on notes and avoid the problems of dealing with toilets and tenants that landlords have. When was the last time you called your bank when your toilet clogged or your air conditioner went out? Never! Keep in mind that there are servicers, property preservation companies, realtors, and real estate attorneys all across the country to help you with your note deals. You don’t have to or shouldn’t be a “one man band” when it comes to being an investor. Let the professionals do their job and you enjoy being an investor and not a rehabber or landlord!