Buying Discounted Real Estate Notes

By Author: Joshua Geary
Total Articles: 4
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Which of these would you rather have: a hundred dollar bill today, or a one hundred dollar bill in a year? Most people will choose the fifty dollar bill, and who could blame them? A dollar in your hand is worth much more than the potential of a dollar later to most people, and that is the exact reason that real estate notes are generally sold at a discounted price to buyers who are willing to wait the extra time to reap the rewards of the investment.

A special formula is used by real estate note investors to determine the amount that should be paid for a note at any given time based on the time value of money. Dollars tomorrow are not worth as much to us as dollars today, remember. This discount means that you are not paying the full value of a note (which would include the interest charged on the account) but would instead be paying a lower rate based on the determined value of that money in the future and factoring in the time that it will take you to get your money.

One great way to make money buying and selling discounted real estate notes is to buy notes directly from the original owners of an owner ...
... financed mortgage note at a deep discount. Since the seller is a single person and not a company with experience in the real estate note business, they might be willing to accept less money than the actual value of the note. You can resell the note to other investors, still at a discounted price, of course, and make a profit on the difference between the cost to buy and the price at which you choose to sell.

This is how most people choose to make money with real estate notes, and the competition to buy these notes at a good price is very high. It can be difficult to find great deals in the real estate note market because of this, and a truly good deal is a wonderful boon to buyers who are trying to build their real estate note investment portfolio.

Private sellers can be found through intensive advertising, both in your own local area and online if you choose to go that route, although the competition online is especially fierce. You can build up your own real estate note investment business note by note over time and with much patience. This kind of business requires a great deal of start up capital, so make sure that you have the cash that you need or a way to get it, and be prepared with a fall back plan.

If you choose to hold on to a real estate note for the future value of the money and the potential investment of a regular income from the note, you are creating what is known as real estate cash flow. This form of cash flow is another great way to build up your finances if you can afford to sit on your investment for a much longer period of time.

Building up successful real estate cash flow requires a large amount of money that you can invest for a long period of time, but it can pay off. The return that you get from holding a real estate note is often much larger than you could get from even the most profitable CD or government bond, even if it matures more slowly, and it pays out slowly over time instead of being all tied up at once until the end. However you choose to proceed, know that you are investing in a very lucrative venture.