subject: Purchasing Performing And Non-performing Real Estate Notes [print this page] Even in the real life not everything is created equal and then when it comes to evaluating a the value of a real estate note, why should there be a deviation and at the of the day nothing is more real life experience than purchasing performing and non-performing real estate notes. It would be worthy to understand this theory of real estate notes that defines few notes as performing and the others as non-performing.
Performing
Real estate notes would be classified as performing if the homeowner pays on time to the note holder. To make sure that the note is performing and ease the valuation of the note, its best to keep either a copy of the check or the cancelled check itself. Generally you are free to sell this performing note in any secondary market priced anywhere between 75 to 100% of the current value of the note.
Sub-Performing
Whenever the homeowner decides to pay the note holder a little late from anywhere between 15 to 60 days, it is considered as sup-performing note. It is worthy to note that the homeowner needs to be followed in order to ensure that he doesnt breach the agreed contract which might even include a reminder from real estate attorneys and the note generally fetches somewhere around 50 to 80% of the notes current value.
Non-Performing
One of the most popular note for real estate investors, non-performing real estate notes are those that can no longer repay the entire amount that was mentioned in the agreed contract, which makes it available for very deep discounts. It depends on the investor whether he wishes to take back the asset or rework the note. Non-performing notes can easily be bought somewhere from 10 to 50 % notes current value in the very tight credit market of real estate.
Following are some of the finer points that an investor of real estate notes should keep in mind while going for non-performing notes:
Buy a performing note first
Even though it might sound trivial at first but buying a performing note prepares a nave investor for the tricks and rules, which he would require for sailing the dangerous waters of non-performing real estate notes
Be prepared for a foreclosure
At the end of the day, banks sell off the real estate notes that are not performing at such aggressive discounts for a reason! They understand that the amount they would be shelling for the upcoming legwork and getting the house back in performing condition is insanely high. Therefore, there are large pitfalls in this seemingly profitable business of non-performing notes as well.
