LOW RISK AND HIGH RETURN
To understand the high yields in note investing let’s take a $100,000 mortgage at 7% for 10 years. Suppose you buy this for 80% of unpaid balance. Borrower is paying 7% interest rate as agreed but since you paid less for that loan so your return’s are 12.55%.
What are the risks involved in note investing?
There is some level of inherent risk involved in investing irrespective of the type of investment. You cannot wish risk away but you can identify and be prepared for it. Essentially the effects of major risks in note investing can be mitigated through proper due diligence.
Performing due diligence is the first step to mitigate risk which involves reviewing the documents of the lender, borrower and the collateral.
Some important documents to review before acquiring a note:
–Pay History
-Promissory Note
-Mortgage/ Deed of Trust
-Financials
-Appraisal
-Title Policy
-Guarantor Net Worth
