If you’re thinking about buying notes, you probably arrived on this article because you are doing your due diligence and you want to know what are the risks of note buying to help you determine whether or not to invest in them.
That’s a smart decision to perform due diligence before doing ANY investing, so we’ll answer your question, “What are the risks of note buying?”
Notes May Be Non-Performing… But Is That Such A Bad Thing?
Notes are like mortgages. When you buy cash flowing notes, you’re buying the possibility that the homeowner will continue to pay their “mortgage” payments. While many do (these are called “performing notes”), not all notes are performing. Some start out as performing notes and then become non-performing – that is, the homeowner chooses to no longer pay.
The good news is: there are a few ways you can deal with this risk!
- First, you can work with the owner to get them to pay.
- Or, you can sell the non-performing note to another investor who might be better at dealing with the situation (so at least you get some of your money out of the situation).
And better yet: if it turns out that you’re really good at making non-performing notes into performing notes then you’ll actually have another way of making money: you can become the investor who buys non-performing notes at a discount and turns them into a performing (cash flowing!) notes again.
Other Risks May Include An Out-Of-State Owner, Non-Predictable Notes, Etc.
Notes that are local might be easier to deal with than those that are out-of-state. However, this varies. If you’re just starting out then make sure you buy notes that are only in locality (if available).
Or, you might find that the note’s cash flow is just not very predictable. Technically the note is non-performing sometimes and performing at other times. You may simply need to work with the homeowner to help them find a payment method that works for them.
As with all investments, the risks tend to align with rewards: the riskier an investment is, the greater the reward. So it’s important that you find the balance between the amount of risk you’re willing to take on versus the amount of reward you want to have.
Avoiding risk completely will mean zero return… so you may need to take on some risk to get a return on your investment. Fortunately, with note investing, you can manage your risks and still enjoy a good reward.
No matter what level of risk you’re comfortable with, there’s probably a note for you!
At Sol Mar REI, we are note sellers and we would be happy to work with you to show you what notes we have available and help you start investing in notes. Just pick up the phone and call our team at 1-866-947-2265 or click here now and fill out the form, and we’ll share our list of available notes with you.