What Are The Note Investing Terms You Should Be Familiar With?

 

You must study these terms, seasoning, maturity, and amortization if you are a note investor. Go through this blog if you want to learn more about them.   

 

If you are beginning to consider real estate notes investing as a full-time job, you must be aware of all the terms associated with it. Have you heard about performing and non-performing notes before, right? Performing notes are those that can provide profits or returns regularly. Non-performing notes fail to do so and may need some intervention from the investor.      

 

The second point is to consider is lien positions, whether these notes are of 1st position lien or 2nd position lien. Although we don't require it in normal circumstances, we may need it during foreclosure.

 

During this event, the 1st position lien will be considered first for repayment, before the 2nd position (junior positions). Why? Because 1srt position liens are less risky and have a greater chance of collecting the due.  

 

We will consider an example to explain this concept. Consider a house worth $200,000. It has the 1st position lien at $1,60,000 and the 2nd position lien at $70,000. The investor is more likely to receive the total amount of the 1st position lien but may lose $20,000 from the 2nd position lien. 

 

If you have tax liens and judgment ones, you need to give them the 1st priority, even more than 1st position liens. You must understand the priority of these notes, so it's necessary to go through the notes first.   If you don't want to lose your hard-earned money, you should follow this step.

 

As an investor, you are giving out a loan, and you have multiple ways to do that. You can choose amortized notes to receive interest and the principal amount. These notes can be scheduled, and an investor will receive them accordingly. The interest rate will be reduced based on the balance left during the earlier payment cycle.  

 

Instead of amortization, an investor can also choose interest-only notes. The principal value will remain the same in this method, well, until it achieves maturity.

 

If you are a note investor, you must consider the loan to value (LTV) and Investment to Value (ITV) of these notes. LTV accounts for the face value of the loan that is calculated of the property's value (that is considered collateral). If you want to perform note investing without dealing with any risk, this is the best choice.

 

ITV is considered the purchase price of the note you would buy from an investor or a homeowner. If the equity is more, then this option is quite risk-free. It would help to consider the seasoning (time length) throughout which the borrower will have to pay the interest.

 

To be successful in real estate notes investing, you also consider the term and maturity of the payment. You can also consider asking for points (upfront interest) from the borrower (if you are interested in hard money lending).

 

You can also choose to use a loan servicing provider if you don't want to deal with the entire matter. Are you ready to begin?