Purchasing individual notes
In some cases, our investors prefer to take on the full risk of a note. This is done when they fund the purchase of a note on a specific piece of property. Their return on the investment occurs when borrowers make payments on their promissory note. One of the reasons so many investors prefer this type of investment is they are not sharing profits with any other investor. Additionally, this option allows for some flexibility. Buyers may purchase partial notes offering income over a span of time from 5 to 15 years or they may elect for a shorter-term investment of as little as six months.
The biggest challenge with investing in singular notes is diversity, or more specifically, the lack thereof. Investors stand a bigger chance of losing out on some income simply because if the borrower defaults, they may lose the entire benefit of the note. This is why many investors prefer to invest into a Fund (of notes) because the risk is spread out because of the sheer number of notes involved. Learn more about Fund Investing
Whole trust deed investments also require an investor to have ready-cash available to fund a full loan versus combining it with other investors to invest in a larger note. However, some investors practice what we call “fractionalized investments” where they team up with other investors, pool their funds and purchase larger pools of notes.
The reasons for fractionalized investments are very evident: For example, if you had a $2 million dollar note for a single borrower, found 19 other investors then each investor would only be contributing $100,000 to the overall note. This minimizes risks and allows each investor to be partially vested in the overall promissory note and allow each of them to claim 10% of the profits on the note. This type of investing allows those with less liquidity to participate in a note. Keep in mind these investments are not without their issues. In some cases, disputes may occur between the investors when it comes to disposition of the property. Because each investor owns a “piece” of the note, an agreement must be reached between all parties regarding what steps to take in the event of a default.
In some cases, our investors prefer to take on the full risk of a note. This is done when they fund the purchase of a note on a specific piece of property. Their return on the investment occurs when borrowers make payments on their promissory note. One of the reasons so many investors prefer this type of investment is they are not sharing profits with any other investor. Additionally, this option allows for some flexibility. Buyers may purchase partial notes offering income over a span of time from 5 to 15 years or they may elect for a shorter-term investment of as little as six months.
The biggest challenge with investing in singular notes is diversity, or more specifically, the lack thereof. Investors stand a bigger chance of losing out on some income simply because if the borrower defaults, they may lose the entire benefit of the note. This is why many investors prefer to invest into a Fund (of notes) because the risk is spread out because of the sheer number of notes involved. Learn more about Fund Investing
Whole trust deed investments also require an investor to have ready-cash available to fund a full loan versus combining it with other investors to invest in a larger note. However, some investors practice what we call “fractionalized investments” where they team up with other investors, pool their funds and purchase larger pools of notes.
The reasons for fractionalized investments are very evident: For example, if you had a $2 million dollar note for a single borrower, found 19 other investors then each investor would only be contributing $100,000 to the overall note. This minimizes risks and allows each investor to be partially vested in the overall promissory note and allow each of them to claim 10% of the profits on the note. This type of investing allows those with less liquidity to participate in a note. Keep in mind these investments are not without their issues. In some cases, disputes may occur between the investors when it comes to disposition of the property. Because each investor owns a “piece” of the note, an agreement must be reached between all parties regarding what steps to take in the event of a default.
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Benefits of Buying Notes
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