Buying and attempting to wholesale mortgage notes has become an incredibly hot topic in the last year. However, despite the attractive benefits promoted by note sellers, brokers, gurus and some media outlets, they may not be the silver bullet to making big and easy real estate profits that are sometimes claimed to be. be.
So what’s the real deal with buying, selling, and trading loan notes? What are the actual pros and cons? Are there better real estate investing strategies that might better help some investors achieve their goals?
Wholesale mortgage notes can be incredibly profitable. No doubt about that. Banks make millions every day originating and wholesale these debt instruments. Some have certainly also made reasonable ongoing passive income from holding this type of role. Of course, many have also lost a lot, and that may be a scenario that continues to be more common for a variety of reasons.
The biggest challenge most face and why they completely fail and declare bankruptcy when trying to get into mortgage note wholesale is because most people have no idea how to properly appraise the notes or what to do. makes the notes valuable.
Obviously, if you don’t know the value of what you’re buying, you don’t know if you’re overpaying or not. And it’s hard to resell something quickly for a big profit when you’ve already paid too much for it. This creates big problems at all stages, from loan creation to sale, and especially when investors get stuck with delinquent notes while trying to cure them.
It’s entirely possible to borrow money to buy and flip them or even create notes yourself, although it might not be as easy to flip for much bigger spreads right away.
Some point to nonperforming notes as a takeover strategy to fuel other forms of real estate investment. Often this involves foreclosure of borrowers who remain in default. It is a ‘good idea’, although not always so effective and easy in reality. When you have a landlord who refused to pay their $5,000 in taxes to protect a $200,000 property and has again defaulted on a loan modification and still refuses to move, it’s unlikely to be an easy, cheap, or short legal battle.
By contrast, direct wholesale home sales is different and makes it much easier for those new to real estate to evaluate potential deals and provides them with a larger retail market and more exit strategies.