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Buying Mortgage Notes: Key Benefits

Mortgage notes, also known as real estate notes, can be quite the investment opportunity if you've done your research and buy at the right time. A valuable property in which the payer has a good credit score and consistently makes payments on time is certainly a good sign, and if you can buy the note at a discounted price, the return on investment can be more than satisfactory. While there's less risk involved, in comparison to other types of investments, buying mortgage notes can still present risks, such as the mortgage defaulting. In short, with thorough research and close examination of documents, buying real estate notes can be very beneficial.

Here at Red Enterprises, we're well versed in both the buying and selling of mortgage notes. Though we focus on buying notes ourselves, we're more than willing to share helpful information. So, if you're interested in selling a mortgage note of your own, you can request a quote from us. Otherwise, read below to learn the benefits of buying mortgage notes.

Types of Notes and Their Benefits

As mentioned, buying mortgage notes can prove to be quite lucrative. Both private sellers and banks will sell mortgage notes, and they're often offered at a discounted price to avoid foreclosure, among other reasons. Regardless, not all notes are the same, and some present benefits over others. Take a look below for details and potential benefits of each type of real estate note:

  • Performing: Performing notes are those in which the payer has consistently made payments on time. These are beneficial in that they are low risk, though the return won't be as high, considering said low risk. They are, however, a safe investment.
  • Sub-performing: Sub-performing notes are deemed when the payer is late on payments or doesn't pay the full amount consistently. While they'll require more work (getting the borrower to pay), they can be bought at high discounts.
  • Non-performing: As you can assume, a note is considered non-performing when the payer has stopped making the payments altogether. Though this type of note requires the most work for the note buyer, non-performing notes can be bought at very low prices. Regardless, most real estate investors seek non-performing notes for the low buying price.

Key Benefits of Buying Mortgage Notes

The main benefit in buying mortgage notes is the asset, or in other words, the piece of real estate. Even if the borrower fails to make payments, you still have the asset as collateral. Of course, there are many other benefits to buying mortgage notes, and we've outlined a few of them below. Take a look:

  • They Present Reduced Risk: The aforementioned asset, or piece of real estate is clearly a large benefit. Of course, you'd have to hope the property is worth more than the cost of the note, should the borrower stop making payments, but this should be considered prior to buying the note. Plus, you can always purchase a partial note, further reducing any risk.
  • They're Versatile: As with a house or other piece of real estate, notes can be bought and sold, refinanced, and sold as performing or non-performing. You can even use a note as collateral for a private loan.
  • They're Highly Profitable: Quite often, buying mortgage notes can present returns equal to traditional real estate investing, though the risk is obviously much lower. Plus, buying non-performing notes at low prices even gives you the potential to make even more, especially if you can get it back to a performing note.

As you can see, buying mortgage notes certainly presents a number of benefits, but there's always a risk involved in investing. Of course, the risk is much lower compared to traditional real estate, and the better research you do, the better chance of a high return on investment.

Have a Note to Sell? Call Us!

If you're interested in selling a note of your own, be sure to contact us today. If you ever have any questions or comments, we're always happy to help as well. You can give us a call at 307.213.9095.