Signals from the Note Market
Posted by: Carleton Sheets in Risk, Real Estate Investor, Real Estate, Property, Note, mortgage, Modification, landlord, Foreclosure on May 04, 2009.
Overwhelmed with the sheer volume of foreclosures and mortgage modifications, a number of lending institutions are unloading their portfolios of toxic mortgages and the notes are starting to trickle to investors.
Notes can be a good way to secure long-term wealth, since you are the "bank", collecting the monthly mortgage payments plus interest. Prices for purchasing these mortgage notes, sometimes referred to as "paper" can be even better than purchasing a foreclosure, but you'll need to have cash. And although the prices are tempting, the risk can be high.
When you purchase a mortgage note, you are not purchasing the property. There's no landlording, per se. You will not have to deal with the owner violating the city's noise abatement or an uncut lawn. You are the "bank." There's only collecting the mortgage payments. If the borrower misses a payment, you'll have to act as a bank would by sending the correct notices, trying to modify the mortgage, or---worst-case-scenario---foreclose on the property.
I do not advise beginners in real estate to get involved investing in notes. There are many nuances, much research, and more than a general working knowledge of real estate needed to determine whether a note is worth purchasing. However, given the state of the real estate industry, it is something that you should learn about, as we will probably be seeing more and more of them.
Have you ever purchased a real estate note? How did it work out for you?
