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.