One of the things that
the note investor has to figure out is the amount of risk they are willing to take
in note investing. Any investing,
including note investments, has a
certain amount of risk. Though there are
things that persons can do to lower the risk, there is rarely ever a sure thing
in investing.
Non-performing notes
normally cost less than performing notes.
Consequently, the investor has a smaller financial investment. However,
they also have a greater risk. One
cannot know for sure if you will be able to get the note re-performing or
not. It is never certain what the exit strategy
will be: due in lieu of foreclosure or a
foreclosure. Since foreclosure laws differ from state to
state, foreclosure can take a long time
which means that you have monies tied up in an asset that you cannot monetize.
Performing notes normally
cost more than a non-performing note. While
they cost more, they also usually have a smaller risk. There are a number of things you can do with
a performing note. You can hold on to
the note and collect the payments to full term.
You also have the option to sell the full note at some point in time to
another note investor or to sell a stream of payments of the note (what some
call a partial). Of course, it is
always possible that a performing note becomes a non-performing note before the
end of the note term.
Always, a note investor
like any other investor has to balance risk versus reward. Are you willing to take a greater risk or a
lesser risk? Do you want more reward or
not? There are actions that the note
investor can do to cut down on the risk.
We can talk about those on another occasion. Best
wishes in your real estate pursuits.
- RLW
