Note Investing 101: Everything You Need to Know

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On this episode of the Not Your Average Investor Show, the one and only Scott Carson, President and CEO of We Close Notes, talked to us about his expertise in real estate note investing. Real estate note investing has been something JWB has thought about but never actually done so this conversation with Scott included a lot of valuable information. This episode highlights what note investing is and provides great insight on the pros and cons.

Note investing is the process of purchasing the debt and its security. Real estate note investing is when you purchase a non-performing asset from a lender and then, in turn, become the lender. As Scott said, if you have a mortgage, student loan, or credit card, you are already a note investor, you are just on the wrong side of the payment stream. Scott explained that he buys these non-performing assets for a discounted rate and then works with the owner of the home to find a plan to get them back on track with payments, so they can stay in the home.

When it comes to real estate investing, note investing is not as well- known. While it is one of the least common types of real estate investing, there are a lot of pros to it. Note investing has the potential to give you a desirable return on investment (ROI). One of the ways you make a good ROI is by buying these non-performing assets and getting the payments back on track. If you can get the owner to start making consistent monthly payments again for 12 months, this turns the non-performing asset back into a performing asset. When the mortgage is performing again, it is desirable to bigger banks and lenders which enables you to sell it back to them at a profit. For example, if you buy a loan for $.50 on the $1 (1/2 off) and then get it back to a performing state for a year, you can sell it back to a bigger lender for $.80-$.90 on the $1, making you a nice ROI.

Just like most asset classes, there are cons and risks to note investing as well. One of the risks is if you purchase a note and the owner still refuses to pay. Scott explains at this point there are a few options. The investor can offer cash for keys, or they get the legal team involved and they start the foreclosure process. While not having the homeowner making payments is a risk, it does not mean that you are now in a hole. It just means there is a more extensive process to get your ROI. When you put the property into foreclosure, you will incur additional legal and third-party expenses to get the home ready to sell. Once you sell the home, this is when you can make your money back and keep a positive ROI.

Remember, not every asset class is made for everyone but the more you know about different types, the easier it is to see which one is a great fit for you. Tune into the whole episode with Scott Carson to learn more about real estate note investing and come back every Tuesday/Thursday at at 12:30pm for more information on real estate investing.


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