Today, I want to focus on buying part of a real estate note. Note investing is a little different than investing in the purchase of a piece of real estate. One of the ways it is different is that while you cannot sell a part of a single family home, you can sell a stream of payments of a real estate note (often called a partial note or a partial). No one that I know of sells their master bedroom, but does not sell the kitchen and den. While you can rent a portion of your home or rent your home for a period of time, you cannot sell a portion of your home. However, you can sell a stream of payments on a home. This can be a good way for a new investor to begin to invest in real estate notes. This is how it works: a real estate note investor agrees to sell you a stream of payment on a real estate note. Paperwork and an agreement would be signed by all parties. A loan servicing company would have a copy of this agreement and they would send the payments for that period of time to the person or company buying the stream of payments. After the stream of payments end, the payments would be revert back to the original note investor. This can be a good way to invest in real estate notes for several reasons:
- THE RISK ON THE INVESTMENT IS LESS- Since you are buying a stream of payments, you do not own the entire note and you have less risk. You also own the stream of payments for a shorter amount of time than the full note so the length of time is shorter meaning there is less time for something to go wrong.
- YOU HAVE HELP IF THE BORROWER ON THE REAL ESTATE NOTE STOPS PAYING- In many cases, the seller of a partial note is a more seasoned note investor. Since they own the back portion of the note payments after the partial note payments end, they are interested in the well being of the note. If by chance the borrower would stop paying at all and the property went into foreclosures, you as the partial note investor would be paid first. The original note investor who sold the partial stream of note payments to you would be willing to assist as you seek a workable solution to any problems that come along.
- YOU CAN STILL GET GOOD RETURNS ON YOUR INVESTMENT- I cannot tell you what your return would be on a partial note purchase as that is dependent on what agreement you and the partial note seller work out. However, I can tell you that more than likely the return on your investment will be much more than you can get at your local bank with your monies sitting in a CD or a money market account.
Thanks for reading today. Best wishes to you in all your real estate pursuits.- R.L. Wall