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Conde-Milward Investments
Conde-Milward Investments
Conde-Milward Investments
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Using Secured Or Nonperforming Notes To "Be The Bank"
I am often asked a question that deserves a thorough explanation, "What is the difference between investing in a real estate note and investing in a real estate rental". It is quite easy to get lost in the minutia when you're trying to determine where to best invest some of your hard earned money. If you are like most people who is now convinced that real estate can offer a promising return, then this blog content was prepared with you in mind.
There is an enormous difference between investing in a real estate nonperforming note and investing in a real estate rental. The 3T's of land lording as it was phrased by another author are: Tenants, Toilets and Trash. Investing in a real estate note means you will never have to worry of these 3T's. Investing in real estate rental means you will become quite familiar with all three of them. I am not suggesting all tenants are bad, rather suggesting all you need is one bad tenant to convince you otherwise.
How many times have you heard of a tenant calling the bank because the roof was leaking? How many times have you heard of a tenant calling the bank because the toilet was backed up? Banks have amassed enormous wealth over the many years in real estate finance because they have managed to control the asset and income stream of the asset without ever dealing with any headaches of ownership. Knowing that it has worked for them for so many years, why would you want to try to reinvent the wheel? The answer to both of my questions are very easy, "never". The bank never gets called by a homeowner much less by tenant on maintenance issues involving the real estate.
The bank manages their investment portfolio from an email and a report. The email is from the non-performing note servicing company that notifies a bank that the homeowner's payment has been deposited. The report shows that the property taxes and the homeowners insurance coverage have both been paid current. In some cases the non performing note servicing company handles all three, and they are listed in the email and no additional report is necessary.
Too many of you, this sounds too good to be true. Many people still have the idea that if you want to build true wealth in real estate, your name has to be listed as the owner of the property. I suggest a different approach, you could build true wealth in real estate having your name or that of your company recorded as a lien against the property, in other words you "become the bank". The bank gets paid every month regardless of maintenance issues on the house. The same cannot be said for tenants who feel they can withhold their rent payment until a repair is made.
Have you ever invested in a real estate note? If so, I would like to hear from you on why it was a great deal or possibly not a good deal? Have you ever invested in real estate rental? If so, I also would like to hear from you on why it was a great deal or possibly not a good deal. I have been in the note industry for 25 years and have also personally managed a real estate rental portfolio in excess of 55 tenants at one time. I have received calls from tenants on a Friday night of a backed up toilet right when I was getting ready to have dinner. It was one of those calls and the tenant from hell who I faced in court on unlawful detainer action that finally got me to say, ENOUGH! I have since sold all my rentals, and don't ever have to worry any longer about any of those Friday night calls or Tenants from hell.
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The Basics Of Nonperforming Notes Secured By A Deed Of Trust Or Mortgage

What Is a Nonperforming Note? - A Nonperforming Note (NPN) Secured by a Deed of Trust or Mortgage by legal definition is considered a Debt Instrument. Nonperforming simply implies that the borrower has quit making payments "as agreed" thereby creating a nonperforming event. A Note, also known as a Promissory Note, is the written agreement that spells out the repayment terms of a loan between a Lender and a Borrower.

Nonperforming Notes, in our opinion, are much safer than many other types of investments because they are secured by real property. Once a Note becomes nonperforming, the Note Holder at their sole discretion, has the legal authority to force a foreclosure sale on the real property in order to recover the unpaid principal balance that is owed to them. The property is therefore either purchased at the courthouse steps by real estate investors or the note holder takes legal title to the real property. This allows CMI to aggressively price and sell their properties at prices much lower than other comparable properties in the neighborhood where the home is located.

"One of the most important features of purchasing a Note is the little-known secret of 'compound interest'". Albert Einstein once referred to compound interest as the eighth wonder of the world. If you are familiar with compound interest, you should also be fascinated with how it can help you build enormous wealth when you own a Note. If you are not familiar with compound interest, take a look at a traditional 30 year mortgage and ask yourself the following question: how can a lender keep approximately 90% of the monthly payments paid during the first year of a mortgage? In other words, they keep approximately $900.00 for every $ 1,000.00 paid by the homeowner. Wouldn't you want to be the bank (lender)? You can, by owning a Note.
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Advantages Of Nonperforming Notes As An Investment Vehicle

CMI purchases nonperforming notes for one reason: their advantages far surpass traditional real estate investments. The objective in purchasing nonperforming notes is to incentivize the borrower to begin making their payments. Many of the nonperforming notes we purchase have 15 to 20 years until the maturity date of the Note. It therefore allows us an opportunity to collect monthly payments for a very long period of time.

By comparison, nonperforming notes as an investment are much more predictable than the stock market. The stability they offer is unlike any stock or mutual fund; the Note is secured by a Mortgage or a Deed of Trust (real estate). You always have the safety net of the real estate to fall back on in the event that the borrower is unable to pay.

In short, we teach people how to "Be the bank." Banks have amassed enormous wealth in real estate finance because they have been able to control the asset and the income stream of real estate without any headaches of ownership. A homeowner does not call their bank (lender) when the roof begins to leak, they call a roofer. A tenant who lives in a rental house does not call the bank (lender) when there is a major plumbing problem in the house, they call their landlord or a plumber. The bank (lender) gets paid first and every month or the homeowner may risk losing their property in a foreclosure sale. Wouldn't you want to be the bank? Guess what, you can when you purchase a Nonperforming Note. Notes are truly "An Investment like No Other."
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