Note Buyers

By now everyone has heard that banks have ceased foreclosures for the holidays. This has made finding inventory much more difficult for a few investors that depend on just those foreclosures as leads. In the last few years I have began working with non-performing note buyers or NPN buyers. These buyers buy notes from the same banks that you are expecting foreclosures from. What do many note buyers have in common? They were once real estate investors that now prefer to buy and sale the notes in order to avoid house renovations, tenants, etc.  They are also looking to liquidate those properties so they can purchase another bundle of notes.

When note buyers acquire in bulk they end up with plenty of properties at pennies on the dollar. For example, they might purchase a $100,000 note from a bank for $40,000. They know that the current property owner of the property is not making payments. Because they now carry the mortgage/note they can now foreclose on the property and take procession of the property. Again, these note buyers usually do not want to bother with holding or repairing these properties. At this stage is where you, the real estate investor, would like to step in and relieve this note buyer of this burden. Of course, you will not be purchasing this deal at $40,000 but maybe for $45,000-$50,000 if the property needed $20,000-$25,000 in repairs. Given that the property is still worth $100K this purchase would be at 70% LTV including repairs. This would be a deal any serious investor would consider.

When purchasing properties from a note buyer you would be in a better position if you were capable of buying more than one at a time. You may not be able to acquire a bulk as they did but three plus would be ideal. Keep in mind that they are looking to liquidate tons of properties at a time. They would prefer not to close each deal individually. They would rather sell off in smaller bunches at a time to make their lives easier. If you purchase three or more at a time and can close quickly you may be able to negotiate a better deal. Also, keep in mind that many bulk note buyer do not see the properties that they acquire. This means that because you are local and have the time to go see the property you may see something that you can use as a negotiating tool. The note buyer realizes that they are not going to profit on every property but will net a profit when everything is liquidated. Therefore, do your due diligence, run your numbers and submit the offer that fits your exit strategy. If the note buyer is local he/she will verify your claims in person but if they are not local you may want to send them a few pictures of items you are referring to in negotiating a more favorable price.

This is only one scenario that can play out when working with note buyers but as you can see they can be another great source.  In addition, these note buyers can continue to buy even when foreclosures are seized because they are taking over the current notes and not having to wait for a foreclosure.  As always, this is possible because there is a win, win, win situation. Again, when it’s time to close and fund make sure you do and the deals will keep coming.