Buying a real estate note is like buying a boat
In short, buying an unprofitable real estate note is like buying a boat; the two happiest days are the day you buy it and the day you sell it. Investing in a past due note (NPN-NPL) and cashing in for profit are my happiest two days as a note investor.
You’ve heard the old saying in real estate, you make a profit when you buy. How true is that, especially in the world of notes! We’ve found that you need to take into account all the costs that you will run into from the day you buy it to the day you sell it, and use it to make sure you’re not overpaying. Otherwise, you can lose money; sometimes a lot, sometimes everything.
While some warm and fuzzy feelings are experienced when owning the boat, such as taking it out on the water for the first time, it will come with a lot of ongoing costs. If you store it on the water, there are dock fees, maintenance fees, insurance, and if you financed it, monthly payments. If you keep it at home or in a parking lot, you will need to protect it from the elements, possibly pay rent, and you could destroy it in an accident by towing it or putting it in water.
With NPN, finally making contact with an owner who wants to stay, despite trying his best to be invisible, is just as exciting. This usually leads to trying to work out a payment plan to get them to pay, or settling for a lump sum to pay it off is a great feeling.
Otherwise, it is practically death by a thousand cuts.
Sometimes I feel like a plethora of service providers is crushing us and darkening us to death; attorneys, note managers, document custodians, rehabilitators, lawn mowers, property conservationists, appraisers, photographers, house cleaners, city agencies, code enforcement, county tax collectors, realtors, health inspectors, zoning ordinances, homeowners’ associations, utilities, forestry divisions, garbage haulers, floodplains, etc. all want to extract as much money as possible every time they move or write something.
So the most important thing I do now is to calculate as many costs as possible before making an offer to buy a ticket, so that we can factor it into our purchase price. One of the most important that we have found in the making of more than fifty bills is that the expenses are usually higher and it takes more time to get out in the states of judicial foreclosure. And now that we know something about real estate rehab, we’ve been matching potential home repair costs to our promissory note offers to see if we can still make a profit or suffer a potential loss.
Now is the time to take into account the judgment of the old carpenter; “Measure twice, cut once.” With notes, you need to be sure to run the numbers inside and out before you commit to buying a “Calculate Twice, Buy Right” note.