Performing 2nd Notes

Buying Performing 2nd Notes in Arizona

Real estate investing can be fun and lucrative!  However, it can also take a lot of time up front in order to learn to do it well and safe.  Some people don’t have the time or the connections to build a real estate investment business but they still want to be involved in real estate.  For people like this, note investing can be a great fit.

What are notes?  Simply put, notes are loans that are usually backed by real estate such as a mortgage or some sort of other collateral.  Often times notes are created and title companies record deeds of trust in order to show the lien position of the note.

Just as a bank that collects monthly mortgage payments.  Note investing can provide cash flow on a regular basis.

We create 2 different 2nd position notes

NOTES ON REHABS

Private money that is used to buy these notes is used for the rehab of a specific property.  The private money lender gets a promissory note and a deed of trust is recorded in the name or the business name of the private money lender.  As soon as the rehab is finished, the property is leased out, and the property gets refinanced into a long-term loan, this loan gets repaid plus accumulated interest at the time of the refinance.  These loans are set for up to a year but are usually paid off within a 3-8 month period of time with 10% interest on the loan that gets paid out at the closing of the refinance. 

NOTES ON LEASED-OUT PROPERTIES

These notes are on properties that we already have leased out to someone who is lease optioning the property.  The leasee has purchased an option for usually between $3,900 and $10,000 to buy the property within a specified period of time (usually between 3 to 5 years).  They are paying their monthly lease payment which goes toward the underlying mortgage, the taxes, insurance, and managing of the property.  The rest of the money from the lease payments goes toward monthly cash flow.  Private money lenders are paid out of the monthly cash flow between 8% and 10% depending on the length of time of their loan (8% for 1 year, 9% for 2 years, 10% for 3-5 years).

Here is an example. Lets say that a property is purchased for 90k that needs 30k in rehab. After the property is rehabbed it gets appraised at 165k.  A local bank lends 120k (about 73%) for a first mortgage on the property.  The property then rents out for $1300 a month. Taxes and insurance and managing the property equals roughly $175 a month and the monthly mortgage payment is $825 a month.  The property would cash flow roughly $300 a month.  

The private money lender comes into a second position on the property by making a loan for $10,000 in this case for 3 years. The private money lender gets a promissory note for 10% broken up into monthly payments and gets a deed of trust on the property.  The private money lender gets $83.33 of the $300 of the monthly cash flow.  The property is now encumbered 130k which is around 79% of the current market value leaving about 35k of equity in the property unencumbered.

The loan matures at the time indicated on the promissory note or when the property gets refinanced or sold – whichever comes first.

Private money lenders can obtain title insurance if they wish at their own expense.

Interested in finding out more about these 2nd position performing notes?  

We regularly create second position notes on properties that we acquire in order to  give people who are interested in learning the process of how to be a real estate investor an opportunity to learn and see the process of investing by watching us manage our real estate projects.  This gives someone the opportunity to learn while they learn interest on the money they have lent.

If you are interested in finding out more about these notes or would like to be notified of their availability, give us a call at 480-206-1209.

Here is an example of the promissory notes that we use with our second position notes. 

* This is not an offer to sell or a solicitation to buy securities.