HAPPY ENDINGS: THE UNADVERTISED BONUS OF INVESTING IN DISCOUNTED NOTES DAWN RICKABAUGH
Becoming a Private Lender.
Most real estate
Lend to buy-and-holders:
investors leverage Other People’s Money, either
•
longer term (5-8 years)
for acquisition, rehab and flipping, or for long-term
•
interest rates between 8% - 10%
holding.
•
LTV (loan-to-value) usually no more than 60%
(and the property is already rehabbed)
When you’re bidding on an REO (foreclosure
property) or short sale, you need to be able to
If you’ve done a good job of underwriting the
close quickly. So, even if you could qualify for
borrower and the collateral, then the worst case
bank financing, it’s not as easy and quick as
scenario is usually that you end up owning real
private financing.
estate for less than its FMV (fair market value).
If you don’t have the time or inclination to invest in
Buy Discounted Notes.
real estate yourself, then lend your money to
anyone who originates them:
people who do:
•
A bank (usually non-performing)
•
A private lender who wants out
•
A seller who carried back paper on property
Lend to fix-and-flippers:
•
short term (4-12 months)
•
interest rates between 9% - 15%
•
LTV (loan-to-value) up to 70% of ARV (after-
You can buy notes from
repair-value)
they used to own
My favorite is the last.
I love private,
performing notes secured by first trust
deeds / mortgages. There is great diversity
available with this type of paper. It’s never
boring, and I usually find great enjoyment
through my interactions with individual note
sellers and payors.
These personal interactions provide depth
and meaning to my business/investing
activities… icing on the cake of my beloved
financial calculator.
When I can find a creative way to buy a
note that not only meets the needs of my
portfolio, but also exceeds the results the
note seller thought was possible, I derive a
great deal of personal satisfaction.