When it comes to obtaining a mortgage loan, an individual has many more options than he may have thought of. There is the conventional bank loan where most people go to find the money for their purchases and then there is the less known promissory note buyer. This type of investment strays from the traditional in that both buyer and seller can basically create their own investment deal outside of the stringent requirements that are evident in the banking industry today. Mortgages come in all different shapes and sizes and you will probably need a convenient note buyers guide to help you to fully understand each type and how they work; this will help you to decide on the right investment tool for you. Searching online can give you lots of information and could be very beneficial for those new to note buying. Still, if you are thinking about buying a private note, then here are a few basic things to get you started:

Seller Financing

This type of financing is popular with real estate note buyers and is very common among investors. When a particular seller agrees to lend a purchaser the necessary funds to purchase a home, this amount could include the total purchase price or the amount owed after a down payment has been made. In this type of loan, the principle and interest payments are structured to be amortized over a period of time that could range anywhere from 5 to 30 years. Usually with a 5-year loan, the borrower is expected to make a substantial balloon payment to cover the remaining balance. The thought here is that the borrower will be able to secure conventional financing from an institution or another lender at the end of the term. If for some reason the borrower is not able to meet that final payment or defaults on his payments before the final payment is due, the investor can foreclose on the sale and acquire the property for himself.

These types of loans are very popular for those who are unable to secure traditional loans from an institution; self-employed, retirees, or those with a negative credit rating are more likely to take advantage of this type of loan.

Private Mortgage Loans

Another avenue that many investors use are the private mortgages; these are created with private lenders that lend money at above-market interest rates. In these types of loans, the property is generally held as a collateral in case the purchaser defaults at any time. Generally, those that avail themselves of these private note buyers, such as Texas note buyers are those that may be considered at high risk for the traditional financial institution. If you choose to take advantage of this type of investment, it is important to carefully select your investment option; you’ll want to be sure that the borrower is capable of repaying the loan and that the property’s condition is in line with the current property value. If for any reason, the note buyer has to foreclose, you will want to make sure that you have a means of recouping your investment.

Another reason why this type of loan is so popular has to do with their higher than average interest rates. This makes them very attractive investments to hold onto; however, that does not mean that they can’t be sold off to a third party if there is ever a need for immediate cash.

Time Value of Money

It is important to take into consideration the idea of “time value of money”, since this controls how much you would be able to invest. When you, the seller, are ready to sell your note to a third party the price you sell it for is determined not by the outstanding balance on the loan but on the current value of the property itself. Factors have to be figured in the equation such as property condition, borrower’s financial status, and the outstanding balance among other things. The formula for determining the price of a note can be rather complicated, but there are many resources online to help you figure it out.

Real estate note buyers are a unique group of people that know how to take risks and make money from it. They are savvy investors who can tailor make a financial package for anyone that may need it. In light of the way that the economy is changing, it is only realistic that the way people buy property changes with it. Taking the time to learn all about investing in promissory notes can make a major difference in your real estate portfolio and certainly represents a major increase in your profit potential.

Sell Your Note to a Note Buyer

Whether you are a buyer or a seller these days, you can’t help but notice that getting a loan to purchase real estate has been very challenging. In light of the recent real estate crash, finding a traditional loan for the average person has become almost impossible. For those who are in search of a chance to own their own property, their only chance of fulfilling that dream lies with a private note buyer.

For example, for the Texas note buyer, if you’re looking to tap into the current real estate market and want to avoid the hassles that come with flipping houses and reselling property, then becoming a note buyer may be the answer you’re looking for. However, if this is your first time buying notes, you may want to do a little research before you start to invest. Real Estate note buyers have a very different perspective on the deal than the note payers and you will have to adjust your thinking so that you can capitalize on your profit potential.

What is a Real Estate Note?

Basically, the real estate note is a type of promissory note or a written declaration of debt between two parties. Included in this document is the amount of money to be repaid, the date or dates when it should be repaid, the maturity date, the interest rate, and the specific terms of repayment. They are more informal than the traditional bank loan but less formal that the old standard I.O.U. of days gone by.

What the Payer is Looking for

The perfect deal for the borrower is a “no money down” purchase, low interest rates and payments spread out over 30 years or more. This makes it easy for them to get into the property and maintain the majority of cash in their pockets. For the borrower, this type of deal makes perfect sense; however, it works to their advantage and provides them a means to get the real estate their looking for without putting up a lot of capital first. On the other hand, however, for the promissory note buyer it can severely limit their profit potential.

What the Buyer is Looking For

The best deal for the note buyer must involve some cash up front, usually around 10% of the total purchase price, and instead of the payments being spread out over 30 years as in a bank deal, the amortization of the loan is drastically reduced to somewhere between 5 and 10 years. Interest rates usually range somewhere between 12 and 20% of the sale price. This type of deal works well for the buyer of the note. It puts cash in their hand up front and reduces the amount of time for the loan to be repaid and offers a tidy little interest rate to insure a decent profit from their investment.

You Have to be a Savvy Negotiator

Clearly, you can see that the approach to the deal for the real estate note buyer and the note payer are different. In order for the buyer and payer to strike a bargain, it will be necessary for you both to be savvy negotiators. The deal needs to be appealing to both parties so that they both can get what they want. You should know before going into negotiations what you expect to walk away with so that you understand where you can give or take at the negotiating table. For example, you could reduce the payment to counterbalance having less equity in the property. If you’re dealing with a payer that has little or no credit, a foreclosure in his history, or other negative factors in his background personalizing the deal to help them to get into the property of their choice could make both of you happy.

Not a Traditional Loan

Real estate note buyers are gaining in popularity because they offer potential homeowners with another option that makes it easier for them to get financing. When you are willing to offer unconventional, private financing, you make both of you winners. Often, the traditional forms of bank financing are very stringent and leaves out an entire group of would be property investors. Their requirements for qualifying for a loan are placed well out of reach for many people today so there is a very high demand for promissory note buyers. When the deal is designed right, the end result is a win-win situation for both parties.

For the homeowner that wants to sell his home but does not want to wait on the market to find a “traditional buyer”, this type of deal is very appealing. They can take advantage of owner financing strategies through this type of note. On the other hand, for the individual who wants to own property but does not meet the expectations of the current banking standards, the whole idea becomes more than a dream but a real possibility.

A Break for the Traditional Bank

When the average person thinks about getting a real estate loan, they usually think about heading straight out to the bank. The thought of attempting another financing option rarely occurs to them. However, for the savvy businessman, real estate note buyers can offer you secure returns without enduring the many hassles or spending the time to actually deal with the property itself. Flipping houses, for example, requires buying the property, investing in fixing it up, marketing and selling. For this type of investment, a considerable amount of time and money are involved. However when buying real estate notes, none of those things are required. Promissory note buyers simply lend the money that you would otherwise have invested and waiting for returns to come in; definitely, not the traditional way of investing in real estate but gaining in popularity every day..

As our economy continues to struggle to get out of the crisis we’re in, the idea of buying notes will continue to be on the rise. Securing financing is a necessary part of our everyday life, and as our world changes, the way we do business is slowly changing with it. Whereas in the past, the core of the banking industry was deeply included in loans, we can see now that the role of lender is beginning to shift to other resources. Private investors have proven to be more flexible in their terms, more accommodating for the recipient of the loan, so that both parties can benefit from the deal.