Finding Performing Notes for Sale in 2022
Mortgage notes, real estate notes, call then what you will… Debt can be a great investment.
As a lender, you collect regular monthly interest (and capital) payments from your borrowers, and your investment is secured against a physical asset that can be sold if things go sideways. What could be better, right?!
Certainly, if you’re looking for a more passive monthly income from your investments without having to stay on top of it day and night, then finding a few good quality performing notes for sale should be atop your investing agenda!
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Just a quick word first… Remember, I’m not here to give you personal investing advice. What’s good for the goose might be poison for the gander. You should only make investing decisions based on your own personal goals and circumstances. And never invest more in any one asset that you’re not prepared to lose.
An Introduction to Performing Notes
Performing notes are a fantastic tool to add more monthly income to your investment portfolio or retirement account. They pay a much better rate of return than many other interest-bearing investments, and they are backed by a physical asset in the form of real estate. You can also buy notes at a discount to the unpaid balance – effectively amplifying your ROI.
Imagine paying $45,000 for a $50,000 note. Not only are you getting all the interest on $50,000, but you also get repaid $50,o00 in capital too… Imagine trying to do that with stocks, bonds or a money market account! But where does one find performing notes to buy?
Well, you won’t be investing in real estate notes for long before you realise that it’s highly unlikely for institutional lenders to sell you their performing notes in anything less than very large quantities. While some banks do sell notes to private investors, the vast majority are non-performing – and that’s not what we’re looking for today.
So basically you have three more realistic options;
- Originating your own loans as a private lender
- Buying seller financed notes from real estate investors
- Buying performing or re-performing notes from other note investors
These are all reasonable strategies for finding performing notes for sale. So let’s take a look at each and give you some options to explore.
Related: Performing Notes vs Non Performing Notes – Which is the Better Investment?
Originating Performing Notes with Private Lending
Private money is the lifeblood of real estate investing. Whether it is hard money from a professional lender, or a private money loan from a passive investor, real estate investors rely on access to quick cash to close deals fast. This means private lending is a great way to originate your own performing mortgage note.
If you want to start private lending, then you need to find a credible borrower with a good deal. You also need to know how to asses you risk, what terms to set and how to manage the relationship with your borrower once you have made the loan and own the note.
If you think private lending might be for you, great place to start looking for credible borrowers and deals is your local REIA meet up. Since Covid hit, many of these are now hosted online so they’re pretty easy to find and attend. You will find no shortage of potential borrowers there.
I also work with private lenders for almost all of my real estate acquisitions. I’ve used the private ;lending model to build a portfolio of over 70 rental properties. I do all the heavy lifting, and my lenders just sit back and collect their interest checks each month. It’s a great deal for everyone!
See Note for Sale: Check Out All The Performing Notes for Sale in our Private Lender Portal
Seller Financed Performing Notes
Another option if you are looking for performing notes is to buy seller financed notes. Offering seller financing is a very common exit strategy for real estate investors. It’s something I do all the time. Typically, I take a deposit from a buyer and carry a note for the balance. I can then keep the note, borrow against it, or sell it (or part of it) to another investor.
There are lots of place to find seller financed notes. But be aware that you did not choose your borrower. Extra care must be taken to ensure the original lender has made a good loan to a solid borrower. Or at least if it is a risky loan, that the interest rate and purchase discount reflects that!
Related: My Ultimate List of Sources to Find Mortgage Notes For Sale Today
Your last (but by no means least) option to find performing notes for sale, is to work with other note investors and/or brokers. Experienced note investors buy non-performing loans, and work to get the borrower paying again. They will then sell the note as reperforming.
As with seller finance notes, buying a re-performing note makes you the exit strategy for the note seller. This is not necessarily a bad thing, but it does mean that the seller will be looking to retain some profit for themselves – and rightly so!
If you are heading down this route, make sure that the loan terms are sustainable and the borrower’s ability to pay is reasonable. It has been known for note investors to create unsustainable re-performing notes to sell at a profit, only for the note to turn non-performing again a year or so later.
You can buy re-performing notes from a variety of sources online. Of course, you must do your due diligence not only on the borrower and collateral, but also on the note seller. Look for a note seller with a good track record and clean reputation. Be wary of anything that sounds too good to be true – it usually is!
Some Useful Resources
So that concludes the three most common types of performing notes you will find for sale on the open market. In order to get you on your way, here are some useful resources that will help you on your own note investing journey:
Some More Note Investing Articles:
Some External Note Investing Resources:
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