There is a lot of information out there about buying notes as a real estate investment niche strategy. It can be very profitable, particularly if you approach it with more than one strategic goal. There are investors doing this now, and some are helping homeowners to keep their homes while profiting in the process.
The Profit Focused Approach
The approach taken most often is to buy a note on a distressed property and to either foreclose on it or to continue to work with the homeowner within the structure of the current mortgage and payments. The investor can also flip the note, selling it to another investor for a profit.
With notes available in the open market at large discounts to value, the investor can realize a nice ROI even if the homeowner continues to be late or short on payments. The asset is worth far more than the money invested, so risk is minimized and the option to foreclose is always available.
The Borrower Focused Approach
A new breed of note-buying real estate investor is focusing on helping distressed homeowners as the top goal and the ROI as a secondary consideration. This doesn't mean that a great return isn't still part of the deal, just that it's not quite as fat. There is still plenty of profit to motivate the investor, but there is a human side to the deal that's quite satisfying as well.
Because some of these notes are purchased at a major discount to the home's market value, there's room for a humanitarian goal in the deal. This new breed of real estate investor is getting into the investment with a goal of helping the homeowner to keep their home, even when it requires concessions or refinancing so that they can afford it.
Many homeowners in this situation have some equity, but they're experiencing financial hardship and are having trouble making their mortgage payment. The real estate investor who can purchase the note at a deep discount to value can enter the deal with the goal of helping them to stay in the home. The due diligence of course requires that the investor knows what they can do and still justify the end ROI result.
Refinancing the home to reduce the debt and monthly payment and still yield an acceptable return on the investment is satisfying from both investor and humanitarian viewpoints. There can be some icing on the cake as well. There are some local and national government homeowner assistance programs that may offer some incentives to the note holder to help the borrower to remain in the home.
One of the most interesting things about real estate investment is the many ways in which you can get into the game. This is just one, and it offers the investor a way to help someone while enjoying investment profits.