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When you as note buyer make the note purchase, you get to decide what yield you want and what level of risk you want to take. For example, maybe your note buying hot button is the risk. You want as little risk as possible. You can look for notes with really good LTVs, meaning the payor on the note owes a much lower amount compared to the value of the property.http://www.highlandsmanagementservices.com/.
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Reward vs. Risk for Buyers! What Is Your Note Investing Hot Button? There is no debate that owning a cash flow can mean fewer headaches than actual real estate. But the advantages of becoming proficient in the note industry go well beyond just purchasing a note and getting a solid return. Here is just one of the really great features you won’t find at your local bank savings account for note buyers.
Note Buyers Dictate the Terms of Note Investment When you as note buyer make the note purchase, you get to decide what yield you want and what level of risk you want to take. For example, maybe your note buying hot button is the risk. You want as little risk as possible. You can look for notes with really good LTVs, meaning the payor on the note owes a much lower amount compared to the value of the property.
For example: Sale Price: $125,000 Down Payment: $75,000 Current Balance: $50,000 On this deal, the LTV is only 40% You would purchase the 1st position note of $50,000 for something less than $50K (we tend to buy notes at some sort of discount)
Why Is Low LTV on a Note So Good for Note Buyers? • What is the likelihood, if the payor stops paying; you are going to get your money back out of the deal? Very good! Matter of fact, even if you don’t want to mess with taking back the house, cleaning it, and flipping it, you could probably sell the now non-performing note to another investor for at least what you have in it. • This kind of great security comes with an offset. You are most likely not going to get double-digit returns on this deal. But, in this case, the risk was our concern. We are willing to make less yield/return in exchange for less risk. May be we earn 7% on our money. That’s still better than parking it in a bank!
Conversely, you can take more risk in exchange for higher returns. For example: Sale price $125,000 Down payment: $10,000 Current balance $115,000 On this deal, the LTV is only 92% Yikes, not much equity in that deal! At least not enough to stop a seller from walking away if they start to have trouble making payments!
Here Is Where the Flexibility of Note Investing Comes In for Note Buyers • You are going to be able to purchase this type of deal at a much higher discount. Hence a much bigger return – if they pay • You can also purchase part of the note. Maybe you just buy the next 5 years of payments. This helps lower your exposure (or Investment to Value) in the deal while staying in a strong position AND getting a good return. What kind of note buyer are you? Are you willing to take some risk to push your investment returns or are you wanting to back off the returns in exchange for lower risk notes? The choice is yours!
Want to become a note buyer? Are you currently in need of lump sum cash for a personal asset, your business, or some other cash out obligation? Contact Highland Management Services to get a free no-obligation quotation from our contract note buyers!
Office Mailing Address: 34194 Aurora Road Suite #251Solon, OH 44139Phone: 866-641-3395Email: highlandmanagementservices@outlook.comWebsite: www.highlandmanagementservices.com
