ATTENTION INVESTORS! Have you heard about buying Real Estate Mortgage Notes but didn’t know where to start? Did you read an article in the Wall Street Journal touting the security and attractive yields available through owning mortgages? Are you uncomfortable having all your self-directed IRA or 401(k) funds invested in the stock market?

Using a self-directed IRA to purchase Real Estate Mortgage Notes offers another level of security and diversification for investors. In fact, one of the primary benefits of a self-directed IRA is the ability to choose alternative investments that do not rise and fall with the stock market.

Why Buy Notes?

Investing in private mortgage notes provides a steady stream of passive income—cash flow, monthly checks that arrive every month without tenants or maintenance. The mortgage notes we buy are secured by residential or commercial real estate. Real estate notes are bought at a discount to yield 8-12% and priced to maintain an investment to value ratio (ITV) below 70%.

Normally, when property is sold, the buyer will obtain conventional mortgage financing or pay cash for the purchase. Sometimes mortgage financing is unavailable because the buyer is self-employed, lacks adequate documentation, cash reserves, or his credit profile does not meet the lender’s guidelines. Sometimes the property value is below the lender’s minimums, or there are repairs needed that prevent it from being acceptable for bank financing.

Whatever the case may be, some properties sell faster when the owner offers seller-financing. Private mortgage financing expands the market of potential buyers, even though it’s usually at a much higher rate of interest than what may be available through traditional lending channels. Some buyers are happy to pay a higher rate in exchange for a faster, easier closing process without documentation headaches and the loan fees associated with conventional financing.

We commonly buy notes where the buyer has put up 10-20% for the down payment and has been making on-time payments for a year or more. The buyer builds equity with each monthly payment while our investment becomes more secure.

What Happens If..

We have found that a buyer’s history of making payments on a real estate note (“seasoning”) is a reliable indicator of how that buyer will continue to pay in the future. The longer someone has been making payments on their home, the less likely they are to stop paying. This is true regardless of the buyer’s credit rating. Similarly, the buyer’s equity in the property is a reliable indicator of whether or not they will choose to walk away when things get tough, rather than selling the property to reclaim their equity.

We evaluate the collateral when buying a note to make sure it’s marketable at a price that will allow us to recover our investment and expenses in the event a loan goes into default. Unless we’re specifically looking to purchase a non-performing loan, we do not buy notes we believe to have a high likelihood of going into default. However, the truth is that we invest at a low enough ITV to realize a profit even if a loan defaults and we end up owning the property. Foreclosure is a pretty speedy process in a lender-friendly state like Texas, which is why we buy 97%+ of our notes here. We’re very comfortable getting a property back and reselling it for cash, or even creating another note!

Our experience over the last 30 years has been in creating win-win solutions for private mortgage note investors, note sellers, and borrowers through buying both performing and non-performing real estate notes, servicing private mortgage notes, foreclosing, rehabbing and selling properties as needed.

We manage all aspects of a note investment for the benefit of our investor. We do not borrow money or become joint venture partners—we SELL notes to private investors, self-directed IRAs, and 401k plans, etc. Note investors make their own choices when it comes to servicing and management once a note is purchased, but we’re always available to provide assistance or answer questions.

Let’s Talk!

Interested in learning more about private mortgage note investments? Click the button below and schedule a call today! We’ll discuss your goals and show you how buying real estate notes can help you achieve them.