The greater number of exit strategies – ways to get a return on your investment – available to note buyers is what sets note investors apart from a brick-and-mortar real estate purchaser. Because we spent time building relationships with note suppliers, we have been able to buy debt well below what a retail investor would pay.
The goal is to start out significantly ahead with your debt-to-value ratio. What those numbers should be differs from market to market and depend on a variety of factors. Part of it is experience. That’s why when you are new to the investment industry it is always a good idea to partner with a seasoned investor for your first couple of deals. You learn by doing.
Note exit strategies include, but are not limited to, the following:
- Sell the note. If you bought at enough of a discount, you can increase the price over what you paid.
- Get the borrower to start making payments again. This requires some finesse, knowledge of debt collection laws, and a desire to keep the borrower in the home.
- Refinance the borrower. Talk to the borrower. If he or she has any income, you may be able to craft a payment amount everyone can live with.
- Encourage a short sale. A short sale usually means the home is sold for less than the amount owed. This works well when the property is in a high-demand area of the country and the home’s value is more than what you paid for the note.
- Foreclose. You legally remove non-performing borrowers from the property or from the title and sell the property itself.
Our philosophy is to work with the homeowner whenever possible to create a win-win situation, which generally results in a more favorable yield for us. Having multiple exit strategies that actually help homeowners is why notes are an intelligent investment