Minimum Rate of Return on a Note

5 Replies

I'm new to Real Estate Investing, and I'm still doing research to figure out what my niche is going to be.  I'm really intrigued with notes.  I was wondering what would be the minimum rate of return on note would be for someone to want to invest in?  Do any of you have a formalized decision matrix or multi-variable table to assist in your investment decision?  Do you look for different rates of return for different sized notes?  Thanks you in advance for your responses and taking the time to educate me on the process!

Welcome to BP. Everyone has different needs and different yield expectations from their investments. Some wish to reach yields exceeding 20% others are content to keep their funds in a bank account that yields 0.1%. You must decide what return you desire and if the risk to achieve that return seems prudent and reasonable.

I understand that different people are looking for different rates of return, and they have different risk tolerances, but I was more specifically wondering what note buyers are looking for. Is it common to have a rate of return >10% when buying a note? Is the note buying market less lucrative since the mortgage rates are so low from banks?
Thanks for your time

@David Zickafoose

  rates of return on NOtes are regional specific and risk specific.

but generally to answer you question on the low side 6% just like a bank for a prime CA property or other prime market area would be acceptable to high net worth investors looking to place cash that they know will be totally passive.

you can invest with a company like Norris group in LA and get 8 to 12% on notes.

YOu can buy discounted notes from seller carry backs ( which is generally the target for many who go to the note buying schools) and investors market heavy for those and generally look for a 9 to 12% return and just like wholesaling houses or other types of RE many will make offers that will bring in 20 to 30% returns and if the sellers are not savvy enough to figure it out they will sell..

NPN trade at a higher pro forma return than performing notes with 2nds being available on low value assets at pennies on the dollar.

wide variety of notes one can buy or look for. 

It is common for a note investor to demand a yield greater than 10%. Some will accept lower rates for a very safe note (a note at 30-40% LTV is probably considered safe by most people.) Others will demand higher yields and will be willing to accept higher risk to achieve that. It is dependent upon the buyer's expectations for returns and their assessment of risk. Your question will have a different answer for every note buyer and every note.

@Jay Hinrichs

Thank you for the very informative reply.  I think that helps line up my expectations if I choose to become a note buyer.

@Jeff Rabinowitz

Thank you for helping line up what I should expect for an LTV. It's another piece of the puzzle I was wondering about.

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