If you’re thinking about buying real estate notes, you probably arrived on this article because you are doing your due diligence and you want to know what are the risks of note buying in Texas to help you determine whether or not to invest in them.
That’s a smart decision to perform due diligence before doing ANY investing, so we’ll answer your question, “What are the risks of note buying in Texas?” here.
Notes May Be Non-Performing… But Is That Such A Bad Thing?
Real Estate notes are backed by mortgages or in some states like Texas are guaranteed by deeds of trust. When you buy real estate notes, you’re expecting that the homeowner will continue to make their mortgage payments. While many do (these are called “performing notes”), not all notes are performing. Some start out as performing notes and then become non-performing – that is, the homeowner chooses or can’t continue to pay.
One of the biggest risks of note buying in Texas is the risk of payor default.
The good news is: there are a few ways you can deal with that risk!
- You can work with the owner to get them to pay. This can be accomplished by reworking or modifying the terms of the note so that the borrower can handle the monthly payment.
- You can go through the foreclosure process to regain title to the property and lease it or resell it.
- You can sell the non-performing note to another investor who might be better at dealing with the situation (so at least you get some of your money out of the situation).
And better yet: if it turns out that you’re really good at turning non-performing notes into performing notes then you’ll actually have another way of making money: you can become the investor who buys non-performing notes at a discount and turns them into performing (cash flowing!) notes again… creating a lucrative niche for you.
Other Risks Include An Out-Of-State Owner, Non-Predictable Notes, Etc.
Notes that are local might be easier to deal with than those that are out-of-state. However, this varies. If you’re just starting out then make sure you buy notes that are only in Texas.
You might find that the note’s cash flow is just not very predictable. The note is non-performing sometimes and performing at other times. You may simply need to work with the homeowner to help them find a payment method that works for them.
As with all investments, the risks tend to align with rewards: the riskier an investment is, the greater the reward. It’s important that you find the balance between the amount of risk you’re willing to take on versus the amount of reward you want to have.
Avoiding risk completely will mean zero return… so you may need to take on some risk to get a return on your investment. Fortunately, with note investing, you can manage your risks and still enjoy a good reward.
No matter what level of risk you’re comfortable with, there’s probably a note for you!
At American Funding Group, we are note sellers and we would be happy to help you start investing in notes. Just pick up the phone and call our team at (772) 232-2383 and we’ll any question you might have. Or if you are looking to sell a real estate note, please fill out he form below.
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