It seems, sometimes, when I throw a bunch of numbers around in an article some people tend to get that glossy-eyed look. *
(*In all fairness, I really can’t see these people. I mean, this is the Internet and as invasive as it may be, I don’t see each and every face reading this. I just imagine the looks.)
Anyway, there is no question that buying notes is a great way to make money. If that is a question in your mind, you might want to start here.
Here are three ways to increase your return when buying a note.
1. Re-cast the note.
This one takes a bit of number crunching, but the basic premise is to go back and offer the note payers that if they double their monthly payment, you will cut the interest rate in half. (This is the face rate of the note, not the rate of return you used to purchase the note.)
The “double payment / interest rate in half” is just a starting place. You can adjust either way depending on the payer’s ability to repay. The end result is that you are increasing your cash flow at a rate that bumps up your return.
The payers also win…and showing them the effective savings can be a great selling point.
2. Offer to sell the note to another investor.
Maybe you purchased the note at a 13% yield. Offer to sell the note right away to another investor at 10% (or whatever rate you are both comfortable with)
In either case, selling to an investor (or Funder) that is happier with a lower yield than you means money in your pocket. Just make sure you also take into consideration your actual closing and marketing costs.
3. Re-sell the note to the payers…at a discount.
This is an often-overlooked strategy. Simply offer to sell the note outright back to the payers. Maybe you purchased the note for $50K and they owe $65K. Why not offer the note to payer for $57K?
In reality the payer will most likely get a new loan, but they have actual savings in the form of a discounted payoff and you get to turn your money faster.
Buying notes can be very lucrative, no question. But it does not need to stop there. The note industry rewards those investors that are creative, and not just on the upfront buying or marketing.
My mentor once told me, “You make money broking notes; you get wealthy buying notes.”
After nearly 20 years of note buying I can tell you that is a true statement. The only thing I would add is that the real fun starts AFTER you own the note!