Real Estate Note Investing has become very popular in the last few years mainly due the large amount of non performing notes that have become available. Owner Carry back Note Investing has been around for decades and has always been a small part of the much larger subject of real estate investing.
Real Estate Note Investing Styles
There are 2 main styles of investing in notes. Owner Financed or Carry Back Real Estate Note Investing, this is where the seller of a property has carried back a promissory note during the sale of a piece of property. Non Performing Note Investing – This style of note investing has become very popular since the real estate crash of 2008. This note Investing style predominately focuses on finding notes that are in default and attempt to bring the note back into some form of performance. The majority of all non performing notes are Institutional notes from large banks such as Bank of America or Wells Fargo.
Types of Real Estate Notes
When choosing to invest in real estate notes you will come across many different types of notes, some of them will include.
Single Family Home Real Estate Notes – Owner Occupied
As the name suggests these are notes that are secured against a Single Family Home, these are generally the most desirable to note buyers and note Investors. The are normally the most secure form of notes and thus Investor prefer these over other forms of notes. Home owners typical are the payor on these types of notes and live in the home.
Single Family Home Real Estate Notes – Non Owner Occupied
This is a note where the note payor does not live in the real estate that they are making payments on. Since they are not living in the property, note investors or note buyers consider this a higher risk investment and will therefore discount the note more than if it was owner occupied.
Duplex,Triplex or Fourplex Real Estate Notes, non owner occupied
These notes are typically held when a Real Estate Investor sells a property to another real estate investor. The seller may carry part or all of the mortgage when the real estate investor sells to the Investor. Since this is non owner occupied the risk on this type of note is higher. If the note should go into default the payer in not going to loose his home, he is going to loose his investment. Since this is a higher risk investment the discount on this type of note is higher should the note holder choose to sell the note to a note buyer.