To the average person with an eye towards investing in real estate, buying mortgage notes might not readily come to mind because this type of investment purchase has not traditionally been as popular as the buying and selling, or buying and renting, of real estate properties for profit. However, on those occasions when individuals have acquired comparatively accurate information about mortgage note investments, almost always their investment dollars were put into mortgage notes instead of the previously mentioned alternatives.
It is almost common knowledge that in order to profit from buying and reselling a piece of real estate – whether it's a single family residential property, or a multifamily dwelling – the investor must lay out the money for purchasing, then lay out additional money to repair or completely rehabilitate the property, before putting it on the market in an effort to recover the money invested via a sale of said property at a price sufficient enough (sometimes market value) to satisfy the investment dollars and anticipated profit.
In other words, buying and selling real estate is a process which involves money, hard work and time; but it is a process that also involves risk of great loss if the investor lacks the kind of knowledge, experience, sophistication and liquidity (available cash assets) to deal with setbacks or unforeseen occurrences. This is not to say that there are no requirements for such skills and abilities when dealing with other types of investments.
On the contrary, depending on the type of investment an individual decides to put money into, it will most definitely require a different set of investment skills; as in the case of buying real estate for long term investment return via rental income. As a landlord, the investor will need some knowledge of landlord/tenant laws and ordinances for the locality or jurisdiction (state and city) in which the property is located.
Depending on the location, there might be rent stabilization, rent-control and environmental control ordinances with which to contend, and therefore a good working knowledge of, or some experience in, dealing with the local department of buildings will be required if such a(n) investor/landlord expects to realize a positive return on investment. But once more, this type of investment is a process – albeit much longer than that of buy/repair and resell – which involves money, hard work and time, with no assurance of realizing a profit.
Profit is the primary concern of any investor, despite what investment vehicle s/he decides to put hard-earned dollars into; but whether that profit is realized through money, hard work, and time – or just money and time – is an important consideration. If the investor expects to do most of the work (physical/leg work) necessary to earn a profit then perhaps buying and selling or rental properties may be the way to go. However, if an investor prefers the money invested to do the work and yield a profitable return, then buying mortgage notes seems the logical choice.
An investor's money works best when it is earning interest income, as in the case of a bank, or mortgage lender which lends money at various rates, depending on the purpose of the loan; and every investor has the opportunity, via real estate note buying, to put their investment dollars to work in as smart a manner as banks do.
Anyone who has ever owned a home, or has knowledge of the amount of interest a home owner is required to repay on the mortgages he borrowed to finance a particular home purchase, would be aware of the substantial sums of money paid in interest over a thirty year period – the 30-year fixed rate mortgage loan having been among the most popular in recent history – based on amortization of the loan.
One important aspect of the note-buying business that has a direct impact on the kind of return a note investor will get on investment dollars, is whether or not the company with which s/he invests is a knowledgeable, reputable company that is well-established in the note buying business. Also, if you – the reader of this article – are contemplating this type of real estate investment, but you're new to the note-buying business, it will quickly become apparent to you you the importance of working with a well established and seasoned team. At The Note Factory, we work to develop trust and a strong bond while you build your investment portfolio and acclimate yourself to the note-buying process.
When compared to other real estate investment methods – two of which were previously discussed – one important aspect about note-buying that cannot be denied is the immediacy with which the investor begins to collect payments. As stated earlier, the buy/repair and resell investor does not receive a return on investment – or the original investment dollars – until s/he resells the property, a period which could be three to six months.
The landlord, having a mortgage to repay, may be required to use every penny collected in rents for the purpose of mortgage payments, and therefore might not be in a position to claim a profit for several years. The note buyer begins to collect interest payments as soon as the note buying transaction closes, which takes about fifteen to thirty days. The contrast is evident.