If you’re interested in investing in real estate without having to manage or rehabilitate properties yourself, then promissory note purchases may be the right real estate investment for you. Here’s how to go about investing in real estate notes in six easy steps:

1.      Identify the note you wish to purchase. Investors who are interested in purchasing real estate notes can buy existing notes from the bank, broker, or lender that holds the loan. It is also possible to find notes for sale from individual sellers who participated in financing the property or bought the note themselves.

2.      Negotiate with the current holder of the note. When contacting the holder of the note, you’ll want to ascertain the following: why is the note for sale and what is the asking price for it? Once you’ve agreed on the terms and conditions of the sale, you’ll need a written document (signed by both parties) that reassigns ownership of the note from the current holder over to you. You should also record the reassignment of the note with the clerk’s office in the county in which the property is located.

3.      Obtain the original loan documents. The note seller should turn over all of the original documents for the loan represented by the note you are purchasing. You should verify the loan amount and all of the loan terms (e.g., what payments have been made, when the next payment is due, when the final payment is due, etc.).

4.      Assess the value of the property that secures the note. Since the note is secured by the property, it’s important to make sure that the current value of the property is at least enough to cover the balance of the note. You can assess the property’s value through comps of nearby properties, or you can have the property appraised by a professional.

5.      Check out the note seller. It’s a good practice to run a credit check on the note seller before finalizing the sale to make sure that there are no pending bankruptcies or foreclosures that could jeopardize the position of your note should you need to collect on it.

6.      Arrange for financing. If you want to purchase real estate notes without fronting all of the cash yourself, a hard money loan can be a good financing option. Many hard money lenders are willing to finance note-purchase loans for first-position mortgage notes that are secured by properties with sufficient value to cover the balance of the note.

It is important to remember that when you buy a real estate promissory note that you are also buying the terms that come with it as these usually cannot be changed. As the new holder of the note, you need to be aware of the loan terms so that you know the maturity date and under what conditions you can declare a default and begin foreclosure proceedings.

Montegra offers note-purchase hard money loans, so if you are interested in learning more about financing your note-purchase investments, contact us at 303-377-4181 today.