Buying a Mortgage Note
Member since 2017 · 1 post · 2 votes
Buying a Mortgage Note
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Investor · Raleigh, NC · Member since 2013 · 49 posts · 55 votes
8y@lakshmi chari This is a very broad question but a very good one. When analyzing a note you should look at many factors. Here are some of the things I look at:
I personally only purchase notes that have a population of 10k people or more or are located very close to a metro area. This is because it will be much harder to resell the note, find a contractor, rent or sale if the population isn't very big.
If you're a new note investor its a good idea to chose just a handful of states and focus only on those until you have learned their laws and the process. I won't invest in GA, NY, NJ and parts of Illinois. These are for personal reasons.
I won't invest in notes that have tax or other super liens attached. If you're not aware what super liens consist of, consider getting the book, Bulletproof title due diligence by Alex Goldovsky as it addresses some of the pitfalls of these liens.
Occupancy Status. This depends more on your exit strategy. I cater more to occupied because I like to modify or reinstate these loans which is much easier to do if the occupants are still in the house
Another thing to consider would be the statute of limitations. Many states have laws as to how long you can foreclose after the borrower becomes delinquent. Speak to an attorney about the states you're interested in.
ROI is obviously a good one. There are tons of notes available but they don't all make sense. It's important to determine what you are looking for in your ROI numbers especially if you plan on Joint Venturing these out. Be sure to include some possible rehab if that is a part of your strategy.
There are many others and it will be interesting to see what other note investors look for when purchasing a note.
5 Replies
- Specialist · Montréal, Québec · Member since 2015 · 43 posts · 20 votes8y@lakshmi chari There are many factors to consider when purchasing mortgage notes but I’ll just name a few things to help you get a general idea of what to look for. 1) The area the note is in. I don’t personally like to buy in neighbourhoods that have an average household income of less than 60k per year. I have found that this increases the percentage that the borrower might be able to start making payments again. 2) I have a list of specific states that I buy in and don’t deviate from it. Each state has different laws and some are more advantageous to the lender so I stick with those. 3) The price of the note. I do the math and make sure that in all scenarios that I can still make a decent return. I suggest you pick a start point. Let’s say for example you want to earn minimum 10% return then you would only buy notes that can offer you that return. 4) exit strategy. I always know before purchasing a note what my Intent is to o with it. My plan changes according to the borrowers situation but his helps me make decisions quick no matter what the borrowers situation. Hope this helps a little. Happy hunting
- Investor · Raleigh, NC · Member since 2013 · 49 posts · 55 votes8y
@lakshmi chari This is a very broad question but a very good one. When analyzing a note you should look at many factors. Here are some of the things I look at:
I personally only purchase notes that have a population of 10k people or more or are located very close to a metro area. This is because it will be much harder to resell the note, find a contractor, rent or sale if the population isn't very big.
If you're a new note investor its a good idea to chose just a handful of states and focus only on those until you have learned their laws and the process. I won't invest in GA, NY, NJ and parts of Illinois. These are for personal reasons.
I won't invest in notes that have tax or other super liens attached. If you're not aware what super liens consist of, consider getting the book, Bulletproof title due diligence by Alex Goldovsky as it addresses some of the pitfalls of these liens.
Occupancy Status. This depends more on your exit strategy. I cater more to occupied because I like to modify or reinstate these loans which is much easier to do if the occupants are still in the house
Another thing to consider would be the statute of limitations. Many states have laws as to how long you can foreclose after the borrower becomes delinquent. Speak to an attorney about the states you're interested in.
ROI is obviously a good one. There are tons of notes available but they don't all make sense. It's important to determine what you are looking for in your ROI numbers especially if you plan on Joint Venturing these out. Be sure to include some possible rehab if that is a part of your strategy.
There are many others and it will be interesting to see what other note investors look for when purchasing a note.
- Procurement · Newnan, GA · Member since 2013 · 8 posts · 3 votes8y
Take a look here: https://www.pprnoteco.com/intro/. Dave Van Horn has been a guest on several of the PB podcasts and the e-book on his site is completely free and easy to follow. It is a great resource and should give you some criteria to think through.
Rick
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes6y
If you are going to be investing in first position notes, then I would recommend you not start in notes. The reason I say that is with first position notes, the property is the most important factor. If you are not familiar with real estate at all, you are exposing yourself to significant risk. BPO agents etc cannot be trusted to determine value, nor can realtors even if you take a property back. You will need to be able to look at photos and say "it needs a roof" and know what it could cost - because at some point you may need to do that.
While I am sure there are many people who had zero real estate experience and did well in notes, it is more complex than being a buy and hold or fix and flip investor because you are still those types of investors (at some point) as well as dealing with a borrower.
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