Many people who try their hand at investing in real estate do so the traditional way. This usually involves flipping houses or buying homes to be used as single-family rental properties. A few invest in commercial real estate properties like apartments, strip malls, or storage spaces.
There is another, less known way you can invest in real estate in New York which offers relatively higher returns on your investment. This is called NY mortgage notes investing.
What Is A Mortgage Note?
There are times when a homeowner or investor is interested in purchasing a home but cannot afford to pay cash at closing, so they apply for a loan. When purchasing a home through a loan, all the buyer needs is to be able to provide enough money for a down payment then the remaining amount will be borrowed from a bank or a lending institution. In exchange for the money, the lender makes the borrower sign a mortgage note and a mortgage.
A mortgage note, also called a promissory note, is a note that the borrower signs promising to pay back the borrowed amount. A mortgage note often details the following:
- Who the borrower and lender are
- The amount borrowed
- The interest rate of the loan
- The loan repayment timeframe
- What would happen in case of default
How To Invest In Mortgage Notes
There are multiple strategies you can apply when investing on mortgage notes. Because mortgage notes are all unique, you need to find one that fits your investment goals.
Buy Performing Mortgage Notes In New York
If you’re looking to build an investment portfolio that offers stable long-term passive income, you should opt to invest in performing notes. Performing notes refer to notes where the borrower is still actively paying off their debt. These types of mortgage notes can usually be purchased with a minimal discount (around 5-15%) from the remaining mortgage balance.
Investing in performing mortgage notes allows you to simply continue what the lender has started.
Buy Distressed Mortgage Notes In New York
Distressed, or non-performing, notes are the exact opposite of performing notes. While somewhat riskier than the performing notes, distressed notes can offer a much higher ROI.
When buying distressed mortgage notes in New York, you need to take note of the following:
- Purchase a mortgage note with a defaulted loan
- Foreclose on the property or acquire a deed in lieu of foreclosure
- Renovate and repair the home so it is ready for selling
- Sell the property or use it as a rental property
Although it requires more work, distressed notes offer returns much higher than those from performing notes and in a shorter amount of time.
You can buy distressed notes in New York usually at a 20-50% discount.
Turn Non-Performing Mortgage Notes Into Performing Ones
Alternatively, you can also invest in non-performing mortgage notes in NY and turn it into a performing note. This is a hybrid of the first two strategies mentioned above. It also comes with a medium risk and ROI.
This strategy starts off with buying a distressed mortgage note in New York, but instead of foreclosing, you work with the borrower and negotiate the terms. By changing up the loan terms, you get the borrower to start paying off their loan again. You can work together to come up with terms that are favorable to both parties.
Once the borrower and lender (which now is the investor of the non-performing note) settle on a new arrangement and the borrower starts paying off their loan again, the note is now considered to be a performing one. This then turns into another form of passive income for the investor.
The hybrid method takes less effort and expense than just buying distressed notes and flipping houses, but also offers a higher ROI than investing in performing notes. This offers the best of both strategies.
Invest Through Us!
Want to start investing in mortgage notes in New York? Talk to us at Melanin Homes! We have various mortgage notes for sale and offer free consultations for anyone who wants to learn more about investing in mortgage notes. Contact us today through our website for a free consultation or to invest in mortgage notes.