Passive Income Mastery – A Guide to Buying & Disposing of Notes for Steady Returns
Unlock the potential of passive income through note investing with our comprehensive guide. Learn the intricacies of purchasing and disposing of notes to generate consistent returns, with expert advice on selecting the right notes, managing risks, and optimizing your investment strategy. Start building your passive income empire today!
Investors from all over the world have been coming together to invest in real estate notes. They love it because they know these loans provide a surprise payoff, not just an ordinary one!
They keep hearing about residual income – how people get paid for brokering or buying and selling them independently. But this isn’t something we say; It’s something you can use to your advantage when investing with these assets.
Let us consider an example where you get lucky to receive a surprise payoff check of $57,569.28 for a note you sold a decade ago. Well, isn’t it great? But before you get too excited and think you can get rich overnight, let’s be clear that it will not happen with each deal you make. Moreover, an average fee for a note broker is about 3 to 6% of the total amount that note buyers invest. But you can earn some residual income by combining the interest with time and partial purchases.
You might think, how is it even possible?
Well, here’s an example that will help you to understand it in a better way:
Suppose an investor has a deal from a seller with the following particulars:
The sale price is $135,000
The down payment is $10,000
The original balance was $125,000
Terms – 10% interest that is payable in 360 payments of $1,096 per month
The remaining term of 306 months
The remaining balance of $121,248.52
After negotiating for a bit, the investor decided to pay for the purchase of all the remaining 306 monthly payments; hence, the investor purchased the entire payment stream of the note from the seller.
After that, for a purchase price of $97,500, the investor agreed to sell partials of just 186 monthly payments. He then realized that he made a profit of 500 by selling the note, yet he had the right to receive the 120 monthly payments of where each commenced in 15.5 years.
So, here’s a quick recap of the example:
Payments bought by the investor: 306
Payments sold by the investor: 186
Payments retained by the investor: 120
The profit was made at closing, but even then, the investor had the right to a future residual income stream totaling over $130,000.
In this way, the investor made a minimum fee of $2,500 and kept a piece of cash flow in the form of monthly payments for the future.
Schedule B Amortization & Partial Note Purchase
Well, if you are thinking, how is it possible? It’s high time you learn the time value of money and Schedule B amortization.
This differs from the partial agreement, but generally, three amortization schedules at any point in time:
Schedule A – Total balance amortization that is owed by the buyer or payer
Schedule B – Partial balance amortization that the investor owns
Schedule C – Remaining interest due to seller or note broker
In the example, when the deal was sold:
Full balance – A – $121,248.52
Partial balance – B – $103,515.87
Remainder balance – C – $17,732.65
Later, when the buyer paid off after a few years, the numbers changed:
Full balance payoff – A – of $96,915.46
Partial balance payoff – B – of $39,346.18
Remainder interest – C – increased to $57,569.28
Therefore, in the above example, the total and the partial balance went down when the monthly payments were coming in, but what went up was the remaining balance. And so is the power of interest because the rate of the note increases with time.
In conclusion: The foremost reason why investors love real estate notes is that they provide surprise payoffs. You might have often heard about residual income’s various benefits- the payment you keep aside while brokering, buying, or selling the notes. But it isn’t just something that’s said; it works.
Before investing in these investments, one must note your daily risk tolerance and how much time you can dedicate to this investment opportunity. We hope you found our article helpful! If so, we invite you to explore other articles on our site for more information about what topics interest you most!
Check out our article: The Comprehensive Guide to Investing in Mortgage Notes for a complete understanding of Investing in Notes.