Note Investing
Definition:
Note Investing involves purchasing the debt associated with a real estate loan, rather than the property itself. The investor buys the note, becoming the lender, and earns income from the interest paid by the borrower. Note investing can involve performing notes, where the borrower is making payments, or non-performing notes, where the borrower is in default.
🔍 Did You Know?
Investors in non-performing notes can potentially negotiate new loan terms with the borrower or foreclose on the property to recover their investment.
Examples:
Example 1:
An investor purchases a performing note for $100,000, with the borrower paying 6% interest annually. The investor receives $6,000 in interest payments each year until the loan is repaid.
Example 2:
A note investor buys a non-performing note at a discount, paying $50,000 for a loan with a $100,000 balance. The investor negotiates with the borrower, who agrees to resume payments under new terms, generating a profit.
Why It’s Important:
Note investing offers opportunities for investors to earn passive income from interest payments or to acquire properties through foreclosure. It requires an understanding of loan structures and the risks associated with borrower default.
Who Should Care:
- Real estate investors seeking passive income opportunities.
- Lenders looking to sell non-performing loans.
- Distressed property investors who want to acquire properties through foreclosure.
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