Don’t be fooled! Equity is nice, but as a note investor you are only owed as much as you are owed!!!
I have educated not only individual sellers but also banks and hedge funds regarding this big myth about note investing and where we should be in terms of our price point.
A lot of people focus on so much equity in the house. Equity means that the borrower owes less than the house is actually worth. Sometimes note investors (especially uneducated note investors) fall into the trap of overpaying for the note because the house is valued at so much more, and they see a big, giant bubble of equity that they think they can tap! Be careful!
Like I said, in notes investing, you are only owed as much as you are owed. 💯
Unless you take control of the property by:
1 – Getting the borrower to sign the deed of the house over to you as payment in full for the loan *Deed In Lieu of Foreclosure (which is one of the many exits’ strategies in notes investing)
2 – Taking this property to foreclosure auction. (My least favorite exit strategy). You get to set the opening bid, but only up to as much as is owed. I share how you may take a loss in this situation.
You cannot capture that equity unless you take control of the house. Equity does not matter unless you take possession of the house. 🔑
Base your price not on the equity of the home, but on the unpaid principal balance of that loan (never do this if there is NOT equity in the house-that is a topic for another time). I share some numbers in this video to help explain! You do not want to overpay for the note because of the ‘illusion of the equity’. Buyer beware! Do not be lured by the ‘equity’ in a home.
If you do not want to overpay for a note because of the illusion of equity, be careful when dealing with new sellers and connect with me!
TAKE THIS FREE VIDEO SERIES TO LEARN THE BASICS ABOUT NOTE INVESTING
Get the 411 in this quick easy to digest video series, so you have a more comprehensive idea of what it is and if it’s the right next step for you.
Paige Panzarello is the “Cashflow Chick”. Having been a Real Estate investor and entrepreneur for almost 25 years, Paige has experienced many facets of real estate investing. Her experience includes founding and running her own Residential and Commercial Construction and Acquisition companies, Buy and Hold residential and commercial real estate investing, Tax Deeds/Liens Investing, Fix and Flip (Residential Remodeling), and other forms to name a few. She currently focuses on Non-Performing Notes that she purchases all across the United States. Whether in notes, residential or commercial real estate, in California, Arizona, or nationwide, Paige has been successful in completing over $150 million in real estate transactions to date.