Whenever I talk with people about the concept of real estate-backed-notes as investment options, you can see the excitement in their eyes and it’s followed by one common question, “If note investing is so great, why would a note owner sell it to me for a discount?” That’s a great question! Often, in the world of buying real estate your best lead is a disgruntled landlord. Not the case in note investing! Most note owners are not disgruntled but they do have immediate and identifiable reasons for selling their notes:
Why Mortgage Note Owners Sell their Notes
Cash is Running Tight: This is the most common epidemic right now in this economy! Often times note holders are real estate investors who can’t move a property for cash or with traditional financing. It’s after this period that they offer seller financing terms and move the property, but retain the note. In times of cash shortages, a note investor will be motivated enough to entertain wholesale cash offers on their note. Finding these motivated note owners is a matter of constant networking, and consistent marketing to those who hold notes. You may send a mailer out to note holders that doesn’t generate a note purchase immediately, but that mailer is probably not thrown out and once the need arrives for cash, you are the first point of contact.
Moving Up!: It’s not always a negative situation that leads to a motivated note holder offering you a nice purchase price for their note. Sometimes the note holder wants to liquidate their note holdings for bigger acquisitions such as an apartment building, commercial real estate, or a self storage facility. By liquidating some notes, you help them free up the capital they need to make that larger purchase. These contacts are great to keep because as their business grows, they will likely utilize notes again on their bigger projects. Now, your portfolio is growing with them if you can acquire those larger notes.
Family Matters: Holding notes for cash flow, in my opinion gives you a fantastic annuity of payments in retirement. I have also found I am not the only one who thinks this way. Many in their golden retirement years tend to hold notes for the consistent cash flow. When they pass, their heirs are less likely to have that same appreciation for cash flow. Often, they would rather sell at a discount, divide the cash, and forget about the investment. This “Hassle” to them is an opportunity for you! Work with attorneys and let them know about your note acquisition business. They will remember you when they run across clients who have inherited long term notes.
So, as you can see there are many reasons why a note holder would sell and many ways to find them. Have you found success finding motivated note holders? If so, please share your story, and as always your comments and feedback are appreciated.