Creative Way to Profit in Real Estate in This Market

In this market sometimes the only way to sell a property is to carry the note or a second on the property if you have a large amount of equity.  You basically become the bank. You need to know that if you carry the note on the second your lien against the property is in a junior position to the first loan.

This makes it easier for some buyers to qualify for a loan.  An example would be someone who is self-employed, makes a good living, has a high credit score and a low debt-to-income ratio but can’t qualify for the new tighter loan restrictions.  Or, as a seller you may be willing to lend to someone with less than stellar credit for your own personal reasons.

There may come a time in the life of the note that you want to sell all or part of the note.  Let’s say you had a medical emergency and you needed cash or maybe you want to take a big vacation. You can sell all or part of the note you are holding to another entity.

The second party could purchase a part of the note, say 5 years of the 20 year note for a specific dollar amount from you.  They would then be making interest off the note for that five year period and you would have a specific sum of money that was paid by the purchaser of the note. After the end of the five year period you would then revert to being the holder of the note.

There is definitely risk associated with this type of financial endeavor.  You would have income to report to the IRS on the interest earned on the note. There would also be the risk that the buyer of the property can continue to pay on that note and doesn’t default.

In the case of default for the buyer the property would then revert back to you. You would then be able to resell it again. There could be repairs needed and damage done that you would have to consider when you took the property back in default. This is much the same practice as the banks are doing right now on all the foreclosures.

There are probably a myraid of rules and regulations that apply to this kind of practice. I would recommend you seek competent counsel from an attorney and an accountant before you ever make the decision to do that.

But as you know, investments are risky, the stock market has reminded all of us of that this year!  This is another way to invest your money.  Have fun! Be creative! Maybe you want to buy notes!