I threw my arms in the air as I figuratively crossed the finish line this week. I paid $37,500 for a nonperforming note in September. The house is in Ohio. It went to foreclosure auction yesterday and sold to a 3rd party for $68,000! An 81% return.
You want to be as excited as I am about the prospect of buying non-performing notes at pennies on the dollar. Then read on about the upside potential of the non-performing note purchase.
What Is a Non-Performing Note?
A Non Performing Note is a mortgage that has not been paid and is in danger of being foreclosed on by the bank or note holder
Here are a few things to consider before non-performing note investing from Bigger Pockets:
- Buy a performing note first: This might sound trivial when it is a sound practice. Performing note investments will give the novice note investor a good understanding of what is involved in note investing and prepare a note investor for the dangerous waters of non-performing notes.
- Be prepared for a foreclosure: While the dollar amount between states varies, remember you are buying a “toxic” asset that the bank has priced so aggressively to get rid of it because they know the upcoming legwork and cost associated with getting the underlying asset, the house, back into performing condition. Consider this: If a bank sold you a note at 20 cents on the dollar, and you were hoping to gain quick possession of the asset, would you be prepared for a 6-18 month delay in getting a clear title? Would you be prepared for legal fees?
- Get as much information upfront as possible: If you are preparing to purchase a non-performing note, you need to get as much documentation as possible to evaluate the deal accurately—important documents like the original note, all related amendments, and any assignments. Also, work with the lender to gather as much information as possible about the underlying asset (the home). The lender will probably have extensive records of the property. As you receive more information, you will be able to evaluate the investment opportunity more accurately.
There Are Plenty of Opportunities
While this is but a shortlist of considerations, please be prepared for what non-performing note investing can be. There are plenty of opportunities to attain high returns with these types of investments, but you need to know the full scope of work involved with these investments before laying your cash out there for the investment.
Buying Notes and Deeds?
As Covid dissipates, government agencies will sell delinquent notes to big institutional investors in bulk. According to government data, the agencies have sold more than $28 billion in distressed loans since 2012. The selling of delinquent notes and deeds presents an opportunity for knowledgeable investors. By buying notes and deeds, you can become the bank and service the notes and deeds yourself or hire a third-party servicing company that also deals with late pays.
Paige Panzarello, the “Cashflow Chick,” Founder of The Tryllion Group, Investor/Entrepreneur having done $150 Million+ in real estate transactions; Specializing in Non-Performing Notes. She has been a regularly featured guest on “The Cashflow Guys” podcast, and you can also find her on many other Real Estate and Entrepreneurial podcasts, and in the Wall Street Journal as well. She also speaks at various Real Estate Investing clubs and conferences across the country. Paige teaches the “Building Wealth with Notes” Workshop that drills down into the details of how to successfully buy Non-Performing Notes, create passive income, and mitigate risk.
Surviving the crash of 2007, Paige knows how “life happens” every day. Her passion is to help people build wealth, secure their financial future, enjoy life, and be ready-not broken! Whether it is improving communities one house at a time, helping borrowers stay in their homes, or working with other investors to learn a new way to earn higher investment dollars for their retirement years potentially, Paige dedicates herself and her business to helping people improve their lives in every way. For more information got to www.CashflowChick.com.