How to Buy Performing Notes for Passive Income in 2023
Performing notes are a type of real estate investment that can provide you with steady monthly income and high returns. They are loans secured by real estate properties that are paid on time by the borrowers. Unlike stocks or bonds, you can often buy performing notes at a discount to their face value, which means you can earn more interest and principal than what you paid for them.
But where can you find performing notes for sale in 2023? And how can you evaluate them and buy them safely? In this article, we will answer these questions and give you some tips on how to buy performing notes for passive income in 2023.
Where to Find Performing Notes for Sale in 2023
There are several sources of performing notes for sale in 2023, depending on the type and quality of the notes you are looking for. Here are some of the most common ones:
Private Lending Notes: These are notes originated by private lenders who lend money to real estate investors or homeowners who cannot qualify for traditional bank loans. Private lending notes usually have higher interest rates and shorter terms than bank loans, and they may be secured by various types of properties, such as fix-and-flips, rentals, commercial buildings, or land. You can find private lending notes for sale from online platforms like Garnaco, which connects note investors with note sellers and provides due diligence and servicing support.
Seller Financed Notes: These are notes created when a property seller offers financing to a property buyer instead of receiving cash at closing. Seller financed notes are often used in situations where the buyer has poor credit or the property is hard to sell. Seller financed notes may have lower interest rates and longer terms than private lending notes, and they may be secured by residential or commercial properties. You can find seller financed notes for sale from online platforms like NotesDirect, which lists notes from various sellers and brokers across the country.
Re-Performing Notes: These are notes that were once non-performing (meaning the borrower was behind on payments or in default) but have been modified or reinstated by the lender or a third party. Re-performing notes may have lower interest rates and longer terms than performing notes, but they also have higher risk of defaulting again. You can find re-performing notes for sale from online platforms like Watermark Trading Exchange, which offers both performing and non-performing notes and liens from institutional mortgage wholesalers.
How to Evaluate and Buy Performing Notes in 2023
Before you buy any performing note, you need to do your homework and make sure it meets your investment criteria and risk tolerance. Here are some steps you should follow to evaluate and buy performing notes in 2023:
Review the Note Documents: You should review the note documents carefully and verify the information they contain, such as the loan amount, interest rate, term, payment schedule, collateral description, borrower information, etc. You should also check if there are any liens or encumbrances on the property that could affect your position as a note holder.
Analyze the Property Value: You should determine the current market value of the property securing the note using comparable sales data, appraisal reports, or online tools like Zillow. You should also consider the condition, location, occupancy, and rental potential of the property. The property value will help you calculate the loan-to-value (LTV) ratio of the note, which is a measure of how much equity you have in the property. A lower LTV ratio means less risk and more protection for your investment.
Assess the Borrower’s Creditworthiness: You should evaluate the borrower’s ability and willingness to pay back the loan based on their credit history, income, expenses,