When someone offers a real estate note on a specific property, you can essentially purchase someone's mortgage and then have the homeowner make payments on the mortgage directly to you instead of to their bank or whoever previously owned the loan or mortgage. Today, more and more investors are looking at real estate note acquisitions in their area as a legitimate form of alternative investment. Here's why adding a real estate note to your portfolio might be a good idea.
Better Interest Rates Than Some Investments
If you feel confidence that the property owner will be able to pay off the mortgage, this can be a surefire way to get yourself a decent return of five to 10 percent on your money. In other words, the home owner will keep paying interest on the mortgage to you just like they did when it was owned by the bank. The interest rate on most homes might not knock your socks off as a return on investment, but it's certainly higher than some other investment options like a CD or money market account. It could even be a better return than your stock market portfolio if the market is having a down year.
You Have an Easy Way to Get Out of It and Get Your Money Back
Once you own the loan for the property, the person that lives in the house has to pay you on time. If the person fails to make payments, you will eventually be able to recoup your entire investment by taking the house through foreclosure. The fact that the house can be foreclosed on, though, is usually a good incentive to get the person that lives there to actually pay off the loan in full. But it's good to know that you do have a fail-safe option in your back pocket if the the payments don't come in.
It Might Be Less of a Headache Than Traditional Real Estate
When it comes to making money in real estate, many people prefer to buy a property and then rent it out, serving as the landlord over their tenants. While this is also a great way to make money month after month, being a landlord also comes with headaches. You are responsible for the building, and you might have to chase down late rent or even get a court order to evict someone. With a real estate note, you own only the loan and the not the property itself. This means you can get a monthly check just like a landlord, but you are not directly responsible for the property itself.
Contact a seller of real estate notes in your area for more information