Is this a risky time to buy mortgage notes?

Question

Very intrigued with note investment (non-passively) and wanted to hear what experienced investors do when the RE market softens or drops.  Is it better to sit on cash and wait it out or are there opportunities?

Daria B. · Answer

@Josh Shapiro

I think owning Notes are different than the physical ownership of property that seems to be more affected in different ways.

Josh Shapiro · Answer

@Jordan Williams. Thanks Jordan.  Id like to get non-performers to perform if possible.  Buy at the discount and try to add the value.  But if market tanks, so does the value and equity.  That to me would be a reason to wait it out... unless there are opportunities id be happy to learn.

Christina F. · Answer

@Josh Shapiro, Notes are the best place to be when the market starts adjusting downward. We don't buy non-performers according to the FMV of the property; we buy off the UPB (unpaid balance), unless, that is, that the FMV is lower than the UPB. It takes some thorough due diligence on each asset you're considering buying, to be sure you're getting it at the correct pricing to leave plenty of margin for absorbing a hit.  What is currently happening right now is there are new investors entering into the note space who are buying them at too high of a price, thus leaving themselves open to greater risk. Pretty much the same that's happening with traditional real estate investing, which is causing the prices to rise.  But there are still plenty of deals out there; you just have to be careful who you're buying from & surround yourself with a strong network of experienced note investors so you can reach out for help when needed.

Jordan Williams · Answer

@Josh Shapiro I think it all depends on your strategy. The market will affect someone who plans to buy Non-performing notes in attempts to try get it re-performing as opposed to the investor who purchases performing notes for passive income. Depending on your goals you can then have a concise answer as to what would happen to your portfolio of notes during a downturn In the market.

Josh Shapiro · Answer

@Daria B. TY :)

Josh Shapiro · Answer

@Daria B.  Thanks but foe the last 10 years or so its been an up swing in the market.  Its looking to me like we may be in for a slowdown.  Different strategy..

Daria B. · Answer

I have been investing in Notes the last 4 years and have not really experienced a time that I was purposefully sitting on cash. Like with SFR, they too can be overpriced due to sellers pricing.

Is this a risky time to buy mortgage notes?

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