What you ask, do Notes have to do with Real Estate investing??
The Note or “Paper “business is the financial side of Real Estate.
Seller financing means that the seller financed the sale of their property when they sold it. Notes are held by individuals or private companies and secured by real estate, the collateral.
So what is a Note?
A Note is a “tangible” asset with a physical piece of real estate attached to it.
When a Note investor purchases a loan there are generally two loan documents that are created. A Note (promissory note) and a security agreement (mortgage, deed of trust, trust deed etc.- depending on state customs).
The Note is evidence of a promise to pay a debt signed by the Borrower.
The security document (mortgage) is recorded at the County showing that the borrower pledges the property as Collateral against the loan.
Should the borrower default, the lender may exercise their rights that are spelled out in the mortgage document.
Trust deeds, deeds of trust and mortgages have similar wording, and have a few differences, but serve mainly the same purpose.
Today, 3 Major Market Trends have created the opportunity for the individual Note investor:
1) Stock market crash of 2008 – $91B lost out of the market in 2 days – massive exit
Stock market “refugees” with “dry cash” sit on the sidelines knowing that they have to do something with their $$$$ but not sure what!
REO’S: 68% “cash investor” sales. Today, REO’S & Short Sales in decline
January 2016 correction: 93% of investors lost $$$$.
$55B taken out of the market in the past 5 months and continued market volatility remains very worrying as many fear a correction
Passive note purchases solve their problem and allow them to sleep at night!!
2) Note inventory at historic levels and being liquidated by Banks, lenders. You have no doubt seen many sales of Note inventory over the past several months as these entities sell off these loans at a discount instead of putting them on the market as Short Sales or REO’s.
Fannie Mae to Market More NonPerforming Loans to Non-Profits Fannie Mae plans to market more deeply delinquent, non-performing loans (NPLs) to non-profits, smaller investors, and minority- and women-owned businesses.
According to a recent announcement from Fannie Mae, the GSE plans to sell its fourth Community Impact Pool, which is a smaller pool of geographically-focused, high occupancy loans marketed specifically for participation for the aforementioned groups. New Jersey Community Capital, a non-profit Community Development Financial Institution, has won all three previous Community Impact Pools.
The newest Community Impact Pool for sale contains approximately 90 loans focused in the Miami, Florida, area, totaling about $20.1 million in unpaid principal balance (UPB). It is one of three pools of NPLs Fannie Mae is offering for sale via auction. The two larger pools contain a combined total of about 3,300 single-family residential mortgage loans with about $526.1 million in UPB.
3) Banks & Government Entities – Fannie, Freddie & FHA are all restricted by Dodd Frank legislation and no longer write loans on low band assets under $125K, thus creating a wide segment of buyers who are not “bankable”. These working class buyers are who we serve. They may have a good down payment but “dented” credit and therefore need Seller financing.
Buying discounted notes is a powerful way to increase your passive cash flow (or “mail box” money) as we call it!!
Today's blog courtesy of Stuart and Tina Johnson:
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