Real Estate Articles

Article 3 of 3 - Why Would a Seasoned Real Estate Investor Need to Be in the Mortgage Backed Note Business? | By: Joe Varnadore

Why Would a Seasoned Real Estate Investor Need to

Be in the Mortgage Backed Note Business?

As a seasoned real estate investor you understand that you make your money when you buy and that is why you need to buy at a discount. The most common “discount buying” strategies are:

  • Short sale
  • Foreclosure sale
  • REO property
  • Tax deed sale
  • Probate sale

You, of course, realize the profit from your discount buy when you apply your pre-planned exit strategy. The most common exit strategies are:

  • Wholesale
  • Retail (fix and resell)
  • Fix and Rent
  • Lease Option

New government regulations have forever changed today’s real estate market. The repeal of the Glass-Steagall Act, and the implementation of the Dodd-Frank and SAFE Acts have forced lenders, buyers and investors to adjust.

To simply continue to pursue the above discount buying strategies and exit strategies will severely limit your investment opportunity and profit margins.

These adjustments have created both problems and opportunities. The problems the seasoned investor faces are:

  • Lack of inventory
  • Rising prices
  • Increased competition
  • Falling profit margins
  • Increased landlord issues

The opportunities that have been created are primarily in the finance side of the real estate business. The finance side of the business is the note industry. This is an opportunity that the seasoned investor can easily add to their current skill set because the investment philosophy is the same: buy at a discount with a pre-planned exit strategy.

The opportunity of adding this part of the real estate industry to your existing business is:

  • Record high national inventory
  • Up to 70% discount buys
  • Way less competition
  • Huge returns on investment
  • No landlord issues
  • Dodd-Frank exemptions
  • Government funds can pay you
  • Passive income streams
  • Lump sum payouts

Take a look at this case study that will yield our very seasoned REO specialist student 322% in one year, on one deal!

Our student purchased an $85,725 non-preforming note for $10,862. Now that’s a discount. In addition he had to pay off some other liens, which totaled about $1500.

Since the owner was still living in the property and wanted to stay, our student modified the $85,725, 8.84% loan to a $52,000, 7.75% loan. This reduced the property owner’s payment from $617 per month to $358 per month.

As a part of this debt reduction and loan modification, they applied to the hardest hit funds. In exchange for forgiving debt and modifying loans, these special funds pay up to a certain amount back to the lender. In this case, our student is receiving a check for $30,000 from the state!

The raw numbers:

  • Paid out $12, 362
  • Received $30,000 plus a $2000 reinstatement fee
  • Will also receive $358 per month for 30 years

By the way, this investor purchased 30 deals in his first year with us.

Joseph Varnadore