Buying Real Estate Notes for the Small Investor

February 3, 2017

There is a lot of information out there about buying notes as a real estate investment niche strategy. It can be very profitable, particularly if you approach it with more than one strategic goal.
Dean Graziosi

Making the Move From REITs to a More Active Investor Role

December 18, 2016

I don’t want to make this an article about becoming a super fix & flip guru or even managing your own rental properties. What I want to help investors to do is to look at how they can exit REITs but stay in real estate as an investment asset class.
Dean Graziosi

Foreclosure 101 for the New Investor

November 3, 2016

If I were writing this back in 2008 it would be a different article. Back then the foreclosures were coming down the pike so fast you could almost do no wrong in grabbing one. Wholesalers, fix & flip and rental investors were rolling in opportunities. The biggest problem was in not being able to do deals fast enough to take advantage of the flood of foreclosure homes.
Dean Graziosi

Buying Real Estate Notes for the Small Investor

August 12, 2016

Dean Graziosi

Buying Real Estate Notes for the Small Investor

April 20, 2016


There is a lot of information out there about buying notes as a real estate investment niche strategy. It can be very profitable, particularly if you approach it with more than one strategic goal. There are investors doing this now, and some are helping homeowners to keep their homes while profiting in the process.

The Profit Focused Approach

The approach taken most often is to buy a note on a distressed property and to either foreclose on it or to continue to work with the homeowner within the structure of the current mortgage and payments. The investor can also flip the note, selling it to another investor for a profit.

With notes available in the open market at large discounts to value, the investor can realize a nice ROI even if the homeowner continues to be late or short on payments. The asset is worth far more than the money invested, so risk is minimized and the option to foreclose is always available.

The Borrower Focused Approach

A new breed of note-buying real estate investor is focusing on helping distressed homeowners as the top goal and the ROI as a secondary consideration. This doesn’t mean that a great return isn’t still part of the deal, just that it’s not quite as fat. There is still plenty of profit to motivate the investor, but there is a human side to the deal that’s quite satisfying as well.

Because some of these notes are purchased at a major discount to the home’s market value, there’s room for a humanitarian goal in the deal. This new breed of real estate investor is getting into the investment with a goal of helping the homeowner to keep their home, even when it requires concessions or refinancing so that they can afford it.

Many homeowners in this situation have some equity, but they’re experiencing financial hardship and are having trouble making their mortgage payment. The real estate investor who can purchase the note at a deep discount to value can enter the deal with the goal of helping them to stay in the home. The due diligence of course requires that the investor knows what they can do and still justify the end ROI result.

Refinancing the home to reduce the debt and monthly payment and still yield an acceptable return on the investment is satisfying from both investor and humanitarian viewpoints. There can be some icing on the cake as well. There are some local and national government homeowner assistance programs that may offer some incentives to the note holder to help the borrower to remain in the home.

One of the most interesting things about real estate investment is the many ways in which you can get into the game. This is just one, and it offers the investor a way to help someone while enjoying investment profits.
Dean Graziosi

Foreclosure 101 for the New Investor

December 10, 2015


If I were writing this back in 2008 it would be a different article. Back then the foreclosures were coming down the pike so fast you could almost do no wrong in grabbing one. Wholesalers, fix & flip and rental investors were rolling in opportunities. The biggest problem was in not being able to do deals fast enough to take advantage of the flood of foreclosure homes.

Fast-forward to today and things are very different. The Mortgage Bankers Association reports mortgages in distress at eight to ten year lows. At the lowest rate since 2007, only 4.99% of one-to-four unit residential loans have missed at least one payment. Only 1.88% were in some stage of foreclosure, counted as inventory. Also at the lowest level since 2007, only 3.57% of active mortgage loans are in 90 days past due status.

FHA loans in foreclosure are also down to an inventory of 2.65%. It would seem that nationally there aren’t a lot of foreclosure homes available. This is true overall, but there are two types of foreclosure based on the state in which the property is located. They are “judicial,” and “non-judicial.” Let’s look at the differences to see why some states have higher inventories and longer times to get a foreclosure off the books.

From, we see this breakout of the states’ foreclosure process:

Predominately Judicial Predominately Non-judicial
Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico*, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Vermont, and Wisconsin Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wyoming

There are some variations and mixed processes in a few states, but this is pretty much how they break out. This is a big picture description of the process, but it will illustrate why some states have higher foreclosure inventories than others, despite economic influences.

Non-judicial Foreclosure

In non-judicial states, a note and deed of trust is the general way a mortgage is held. The courts are not involved in a normal foreclosure process. When a borrower is roughly 90 days behind in payments they’ll get a letter and roughly 30 days to respond and bring all payments up to date, including any penalties and interest.

If they do not do that, then the process moves forward, with the trustee placing notices in the proper places and moving toward a sale of the property. Without any abnormal situations, the property will be sold and the home owner evicted if they are still in the home.

This entire process can take just a few months without any involvement by courts or government other than recording the activity and the new owner for taxes. In non-judicial states, there are generally lower foreclosure inventories now because they are able to move them through the process and clear them faster.

Judicial Foreclosure

There is still a similar process in sending the lender letter at 90 days delinquent, and giving time for a response or to bring the loan current. However, then things take a different track.

An attorney is now in the process and filing documents with the court. The court must review the documents, details of the mortgage, and how the process has been handled to this point. Now everything pretty much stops until the foreclosure works its way onto the court docket and makes it through the ruling of court approval to move forward with a sale.

This is why it takes significantly longer to move a property completely through the foreclosure process in judicial states. While less than half of all loans in foreclosure are in judicial states, those states account for the majority in inventory. The top three judicial states, New Jersey, New York and Florida, have the highest percentage of loans in foreclosure.

Depending on the state in which you’re investing, you can find foreclosure opportunities varying quite a bit.
Dean Graziosi

Making the Move From REITs to a More Active Investor Role

May 27, 2015


I don’t want to make this an article about becoming a super fix & flip guru or even managing your own rental properties. What I want to help investors to do is to look at how they can exit REITs but stay in real estate as an investment asset class.

Why Investors Like REITs

REITs have some really attractive attributes:

• They trade like stocks: Investors can buy into a REIT and enjoy the benefits without a big chunk of capital. They can get out just about as easily and move their money elsewhere.
• REITs pay great dividends: This is true if things are going well. In almost all cases, REIT dividends are higher than bonds, and retired investors want and need the steady income.

Why Care in REIT Investment is Required

REITs can lose big too: When mortgage rates are low and investors see paltry returns from their bond investments, many move their money to REITs for those higher dividends. Unfortunately, if rates rise, those same investors easily and quickly move their money back into other investments. Depending on when an investor bought in, they could lose their gains quickly.

REITs trade like stocks: Yes, I’m repeating what I said in the benefits section. It is easy for investors to buy in and sell out of a REIT, so they can be pretty volatile.

What if You Don’t want to be Really Active?

OK, you want to leave REITs but stay in real estate. However, you really don’t want to manage rentals, and you definitely do not want to get involved in fix & flip. You want to get a nice double-digit ROI from an almost passive role.

Try seeking out successful rental property investors or people who are doing fix & flip at a profit. They often are seeking investors to fund deals. Be careful, check references and track record, and be sure you cover your assets.

You can team up in a partnership with an active fix & flip investor to fund their short term deals of a few months, and you can bank some nice profits. You want to get help in structuring the deal, and you want a note against the property to cover your investment.

From a longer term perspective, you can enter into partnerships to buy and own rental homes or multi-family properties. You want to team up with someone who does want to take on the management tasks and has the expertise to do so. Or, you structure the financial side to afford hiring long term professional management.

The Great Long Term Outlook for Rentals

This is a great time to get involved in rental property investment. Rents are rising with increased demand. The younger generations are not buying homes at anything like the rates they have historically. They are renting.

Baby boomers are hitting 65 at a rate of 10,000 every day. Many will want to rent and get rid of the tasks of maintaining a home. Locating homes in areas where they will have convenient access to shopping, cultural activities and entertainment will help you to keep your units occupied with stable tenants.

The key for those who want a real estate alternative to REITs is to assess their risk tolerance and either jump in completely or partner with expertise and experience.
Dean Graziosi

Could Your Home Sell to an Investor?

January 23, 2015

If you’ve been thinking of selling your home, or if you need to sell, there aren’t many markets out there crawling with buyers. The first time homebuyer market is still in the cellar. The Millennial Generation are still at home with parents for the most part. They’re not buying for multiple reasons, from sketchy graduate employment prospects to high student debt.

Existing home sale prices are improving. The FHFA (Federal Housing Finance Agency) report of home prices for November 2014 shows an increase nationally of 0.8% on a seasonally adjusted basis. However, sellers as a general rule across all markets are not enjoying high demand. The NAR (National Association of Realtors) report of existing home sales for the same period provides these data points:

• November’s sales declined by 6.1% from October, only slightly higher by 2.1% from the previous November.
• All regions tracked showed a decrease in the number of sales, though prices were up slightly.
• It takes approximately 65 days on average for a home to go from listing to contract, slower than the 56 days from the year before.

That’s kind of a mixed bag, and as far as DOM (Days on Market) an average number includes all of those “hot” markets with buyers competing and writing contracts in hours to a few days. There are a whole lot of sellers out there sitting on listed homes far longer than the average. Some markets are always slower, with DOM figures approaching six months or longer. So, if you need to sell your home, or want to and aren’t getting the job done, is it a candidate for a rental property investor?

No Discount — No Purchase

Don’t even think about it unless you can sell at a price at least 10% or more below its true market value. If you owe too much on it to do that, or you just don’t want to settle that low, then keep working the retail market. Savvy investors want to lock in some profit at the closing table.

The good news is that if you can do this, you could be selling very quickly. Investors are constantly monitoring their markets and looking for deals. Many of them pay others to deliver good deals. If the numbers work, they can often offer cash and a closing within 30 days. But, the numbers have to work.

The Numbers

Let’s do an overview of the things rental investors want in a property:
Rental demand — First and most important, the home should be one in an area renters want to live. It must also have some or all of the features they want, and they want pretty much the same thing as home buyers. So, if your home has a non-functional floor plan or antiquated appliances and other features, it’s a tough sell.
Cash flow — Most rental property investors use leverage. They will be using a mortgage, and they must be able to rent the home out for a positive profitable cash flow over their mortgage and expenses. Here is where you need to do some research. Check out the rentals in your market with similar features. Call like a renter, get real rent numbers. Then use a mortgage calculator at current rates and the discounted price at which you’ll sell to see if, taxes and insurance included (20% down), the home can rent out for at least a double-digit positive cash flow to cover other expenses with a profit.
Appreciation potential — Like any other homebuyer, a rental investor wants the asset to grow in value over time. Of course, you can’t predict the future, but you can see how your neighborhood has performed over time. If the area at least keeps up with the national average appreciation or exceeds it, you need to verify that with data.

None of these three research items require much time or effort. You can get data for recent property sales from a real estate agent to determine if you can sell at a discount to value. If your home meets the criteria, you could be a target for an investor. But, they need to know you’re out there. First, pull together your research so you can present it. No sales pitch is necessary, just reliable data they can verify.

Go to Market

This can be as simple as going on Craigslist and placing a free for sale ad targeting investor buyers. It’s different than a regular for sale ad. You want to put your research into a concise ad that will attract their attention with keywords like ‘rental home for sale, great cash flow property, discounted rental property, cash flow home at a discount,” etc.

Then just summarize your data, something like: “Great cash flow rental home for sale in high demand neighborhood with great value appreciation history. Buy at double-digit discount to value, with rental income potential that will generate approx. 20% return.”

The 20% number came from an example home that would rent out for a monthly payment around 24% higher than the mortgage, taxes and insurance, allowing for other expenses. If the numbers work, look for a call within hours to days, as investors or their birddogs are out there looking.
Dean Graziosi

Weekly Wisdom #217 – Seeking Investor Area Managers

September 28, 2014

Visit Welcome to Dean’s Weekly Video Blog as we talk about how to make pr…

How Flipping Real Estate Effects Your Taxes

August 12, 2014

Flipping houses has become a popular way of making money in real estate. The chances to buy a home at a lower price, then fix it up and sell at a higher one may sound exciting, but are you aware of the tax implications? Dean Graziosi has provided some useful information about this below.

Flipping is a viable source of income as long as you live or buy in a region where prices haven’t significantly decreased. It’s important to understand both the advantages and pitfalls before entering into such a venture.

If you plan to flip houses, you will need to consider two factors. One is the amount of money you have to put into actually buying the house. The other is how much you have to then turn around and fix it up. If you are able to do the work yourself, this cost will be significantly less, but if you aren’t able to or if you simply don’t have the time, you’ll need to factor in the cost of hiring someone else to do it instead.

Taxes for properties you flip can get a bit confusing. Many people operate under the idea that it is possible to get a tax break when selling a property. This is true if the property is your own personal residence and you’ve lived there for quite some time, but this is not the case for properties you plan to buy and flip. Since the residence you are purchasing to flip is an investment as opposed to an actual dwelling in which you will live, the tax considerations will be much more costly and differ significantly.

As an article posted on points out, high expectations bring higher taxes. Sure you can buy and flip for a profit, but once the taxes are figured into it all, that profit you make can actually be reduced.  A slower investment pace on the other hand, could net you a better tax situation.

Before beginning your new real estate career flipping properties, learn about all the tax implications. Knowing how to flip is crucial to coming out ahead in the end. Sure you might make a profit off the top, but you might just wind up paying a lot of taxes which will net you significantly less money in the end. What looks like more money can really wind up being less at the end of the year when it comes time to file your income taxes. You want to grow your business slowly, and your profit is no different. It will increase over time if you slow down your buying and flipping process just a little, and you’ll wind up seeing a true profit at the end of the year. Visit Dean Graziosi’s website for more real estate topics and information.

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