Buying Discounted Real Estate Notes
If you were offered a dollar today or ten dollars next week, which would you choose? What if you couldnt have that ten dollar bill until next month or next year? If you would rather have the cash now than wait, you are in the majority. This is why real estate notes are sold at a discounted rate from the actual value of the note.
Real estate investors use a special formula to determine how much money a note is worth at any given time based on the time value of the money and the time value and future value of the money involved. Since money today is not worth as much to potential investors or sellers as money today, the discount becomes a regular part of buying and selling real estate notes. This discount means that the note, which includes the value of the loan and the value of the interest that will be earned on the loan, is actually sold for less money than you will potentially be making by holding it. You pay a lower rate based on the value that you have determined the note will be worth in the future, adding in considerations for how much time you will have to wait to get your money.
Buying and selling these discounted notes can bring you a great deal of profit, and one way in which this is possible is by purchasing your real estate notes directly from the original private owner of the owner financed mortgage at a deep discount. The seller is less likely to have experience in pricing, buying, or selling real estate notes, and is more likely than a company would be to be motivated to sell the note quickly. Because of this, they might accept less than the note is truly worth as an investment, and you can make a great return on your own investment by selling the discounted real estate note to other investors in turn. Your profit is the difference between your cost to buy the note and the price at which you can sell it.
Because of the high potential for profit in this kind of transaction, the competition to buy privately owned real estate notes is extremely high. A great deal like that one could jump start an investors career as he or she begins to build their investment portfolio, however the competition makes it very hard to find a great deal like this in the current real estate note market.
The internet is a great tool for locating sellers and helping to direct them to you, however most of your competition knows this as well and will be searching the same pages as you and advertising in all the same places. Advertising locally is more likely to bring you great business opportunities, and you can build up your real estate note business note by note over a period of time. This assumes that you have the start up capital to even buy real estate investment notes, which are quite expensive. You may not be able to afford a mistake in this business, so plan for emergencies to come out on top.
Regular income from discounted real estate notes can be accomplished as well, in a form known as cash flow. This investment strategy involves buying and holding a note instead of selling it, and in that way building up your cash flow monthly as long as you can afford to sit on your investment.
To build up successful cash flow, you will have to have the large amount of money required to invest in a discounted real estate note for a long period of time. This kind of investment can pay well in the long run, making it worth sitting on your money if you can afford to do so. A real estate cash flow of this kind returns much more than a CD or government bond, and you get monthly payments instead of waiting for a lump sum at the end of the investment. No matter how you choose to invest in real estate notes, they are not an opportunity to be dismissed lightly.
Joshua Geary is the owner of Best Online Results, LLC a SEO Firm. His Self Directed IRA Blog helps those nearing retirement learn more about self directing IRA funds to buy real estate. Visit his blog for the latest self directed IRA strategies.
Article Source: ArticlesBase.com - Buying Discounted Real Estate Notes