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How You Can Buy & Sell Notes for Residual Income

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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:

Consider an investor who enters into a transaction involving a real estate note with the following details:

  • Sale Price: $135,000
  • Down Payment: $10,000
  • Original Balance: $125,000
  • Interest Rate: 10%, resulting in monthly payments of $1,096 over 360 months
  • Remaining Term: 306 months
  • Remaining Balance: $121,248.52

After negotiations, the investor buys the entire future payment stream of 306 monthly payments from the seller. Subsequently, the investor sells a portion of this payment stream—specifically, 186 monthly payments—for $97,500 and realizes an immediate profit of $500.

Here’s a summary of the transaction:

  • Total Payments Purchased by the Investor: 306
  • Payments Sold: 186
  • Payments Retained: 120
  • Profit at Closing: $500

With the deal structured this way, the investor not only earns a profit upfront but also retains rights to a significant future income stream. The remaining 120 payments, starting in 15.5 years, could amount to over $130,000. This setup not only provided the investor with an immediate profit but also secured a long-term residual cash flow, achieving a minimum income of $2,500 plus ongoing monthly benefits.

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.

Final Thoughts,  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.

author avatar
Hartman Managing Member
Fitzgerald Advisors, LLC is a well-established investment firm that focuses on buying and selling whole loans, commercial and consumer debt portfolios, and real estate notes.
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