By note brokering you can make money without much investment (just time, phone, and advertising).It has become a more competitive area, so it may be tough to get started. It may be worth it, though, considering this is almost risk-free, while potentially very profitable Gainesville ga apts for rent.
Real estate notes are the loan documents (the contracts) created when real estate is financed. They include mortgage notes, second mortgage notes, and contracts-for-sale. If a seller agrees to take payments from the buyer for part of the purchase price, he has a contract – a note. If at some point he wants a large chunk of cash instead of monthly payment, he sells this note.
These notes sell for as much as a 30% discount off face value, making them a potentially profitable investment. How would you like to buy $100,000 for $70,000? But what if you don’t have that kind of cash to invest? There is another way to make money with real estate notes.
Note Brokering – How To
There are large investment companies that buy real estate notes. They are ready to buy them virtually anywhere in the country, but they can’t be everywhere at once, this is where you come in. You find the note holder who want to sell, and get a chunk of the sales price. Let’s look at an example.
First you have to find one of these investment companies that work with note brokers like you. A quick search online will get you started. Some will charge you an up front fee of as much as a few hundred dollars to join their organization. This is okay as long as you know what you are paying for – are they definitely a regular buyer of notes, and do they give you some support?
Now you place an ad: “Tired of collecting payments? I can cash you out.” Alternately, you just start listening to people until you find a friend or acquaintance who has money owed to him for real estate, and wants to get a chunk of cash instead years of payments. You find a friend of a friend who is still owed $120,000 on a piece of farmland he sold years ago.
You get the details of the loan, the land, and the borrower. You forward this information to the investment company and they eventually make an offer of $102,000 for the note. Some companies pay you a percentage, but this one just lets you set your own price with the note holder to get your profit. You tell the note holder that you can get $94,000 for his note. He tells you that he can’t do it for less than $97,000. You agree.
After the note buyer completes the transaction, you get a check for $5,000. You can see that this is a good way to get involved in making money in real estate when you have no money to start. I have spoken to investors who do this in addition to their other real estate investing, and some of them claim to do a couple deals like this every month.
Of course this is a simplified example, but many of the big note buyers will do all of the negotiating for you once you find a note holder who wants to sell. They also handle virtually everything else, from arranging for an appraisal of the property that is collateral, to doing the credit check on the the person paying on the note.
More About Real Estate Notes
- Most note buyers don’t ask for up front fees from note sellers. There are many note buyers who will do a credit check of the person paying on the note and give you a quote without charging the holder of the note. Work with one of these.
- Note buyers figure their expenses before making the offer, so there are only a couple fees that a note holder may have to pay. He may have to pay for the title policy, but only if there are problems with the title that prevent purchase. Also if the property appraises at less than the sales price, he may have to pay for the appraisal. Be sure you understand what these expenses may be and explain them clearly to your prospective note seller.
- Seller’s of notes should get a written purchase agreement with purchase price and contingencies. Work with a note buyer that will provide these.
- Note buyers should check the property buyer’s credit up front. Unethical companies quote one price initially, and then lower it later, using the excuse that the property buyer’s credit score is low. Called “bait and switch,” this isn’t ethical. Don’t associate with companies that do this.
- As a note broker, you’ll be gathering information like the type of property, sale price, payment amounts, current balance, etc. Know exactly what information you note buyer(s) need.
- Once you have an agreement, your note holder will need to provide copies of the Mortgage or Deed of Trust, the Note, the closing or Settlement Statement, and the Title Policy. If an appraisal is required, the note buyer will usually arrange for that (and they will pay unless it comes in below the sales price).
- Be aware of what the average processing time is. Once a note seller agrees to an offer and sends the documents (if it is done by mail), he should receive a certified check or electronic transfer to his account within two to three weeks. Ask when you’ll receive your check as well.Get enough commissions as a note broker, and you can start buying real estate notes for your own investments as well.