Different Ways to Generate Substantial Income For Your Portfolio With Assets Other Than Real Estate – Part TwoPosted on October 20, 2015 by
This month I will continue explaining what I believe to be one of the best ways to add additional income to your wealth building strategies investing in Paper Assets.
There are two types of promissory notes “performing” and” nonperforming”. The performing promissory notes are the ones being paid by the borrower every month as agreed. The nonperforming promissory notes are not being paid as agreed and in many cases are in default and in the foreclosure process. Depending on what the asset is that has been used as the collateral for the note, if not being paid as agreed, it may be in jeopardy of being foreclosed upon and the real estate may be taken back or the borrower of non-real estate may be taken to court by the lender to get a judgment against borrower to try to reclaim the money they lent to the borrower. I believe every real estate investor needs to understand how paper assets can be a huge part of their wealth building plan.
One word of caution I want to mention, if you decide this is something you might like to participate in ALWAYS be sure to do your due diligence before ever purchasing any paper asset. The reason I say that is because I recently looked at a portfolio of defaulted notes held by a major bank. When I did my due diligence I found several properties that had a promissory note and mortgage attached to them had been bulldozed and no longer existed and all that was left was a vacant lot. A vacant lot is not worth anywhere near the amount owed on the promissory note. If I had not done my homework and I had bought those particular promissory notes and I decided to continue with the foreclosure that those properties were already involved in there would be no way I would ever get back as much as I might have paid for the promissory notes.
Over the past couple years most investors have been talking about the large amount of properties where the loan is in default and the banks have not foreclosed on the properties yet, known as the “Shadow Inventory”. Some of those loans haven’t had a payment made by the borrower for several years. Having discussed this with different experts who invest in paper assets most are telling me that they do not believe that the banks that supposedly hold the defaulted loans are NOT going to foreclose on those properties. It is the opinion of these experts that instead of foreclosing on this massive number of houses where the loan is in default they are planning to sell the defaulted notes and mortgages to private investors at some kind of discount from the actual amount still owed. They believe the reason the major banks are doing this is for several reasons but most importantly for two main reasons.
The first reason is they don’t want the negative press of forcing millions of homeowners out of their homes even though they have not been paying their loan payments as agreed. The second reason they believe is if the banks sell the defaulted notes and mortgages the investors who buy those notes and mortgages will then be responsible for the property taxes, the property insurance, the expense of continuing the foreclosure, the repairs to the properties that have been not been properly maintained and because the banks have been paid off by the mortgage insurance on the loans they will get additional money for the non-performing notes from investors instead of having to continue paying the expenses and the liability.
If you decide you would also like to invest in paper assets you will quickly need to determine what your risk tolerance is, whether you are willing to risk money on these paper assets you are thinking about buying or not. Paper assets can be a great way to create money for your wealth building plan and many of the real estate investors I know do invest in paper assets. Just be sure to do your homework before you ever write a check to buy a paper asset. If you don’t do your due diligence you may lose money and that is something I do not want you to do.
It is my hope that this article will start you thinking about other income streams you can use to create money along with your real estate business and paper assets is one of them. I personally am always looking for different income streams of any kind to give me more money and a better life. Keep an open mind on the investments you make, always do your homework and due diligence before investing in anything.
Happy investing until next month,