Performing & Non-Performing Promissory Notes
Promissory notes have been around for centuries, yet most investors have never actually been exposed to the opportunity of investing in notes. These are actually a pretty powerful way for you to invest, offering the opportunity to create cash flow and sometimes even capital gains.
Whether purchased or originated, performing notes offer:
- Consistent cash flow.
- Security in the underlying asset
- Can be leveraged
- No tenants to manage
A typical promissory note secured by real estate with a value of $140,000 with the following terms.
- 100,000 Loan amount
- 8% interest rate
- 10 year term.
Here is how you are protected:
- The property is insured.
- With $40,000 of protective equity, meaning the property can decline in value by $40,000 (28.5%) and you have not lost a penny of value in the investment (try that with stocks)
- If the worst case happens and the borrower defaults, you have remedies to take the property back and sell it or finance another buyer.
- Over time the principle balance is paid down further reducing risk.
Non performing notes are Promissory notes a borrower has defaulted on, for some reason they have not been making the payments. Non Performing notes are sold at a significant discount, these discounts set the stage for great returns. Our team and affiliates transform these non-performing notes in to performing notes through a workout process that has been developed over years of working with financially stressed borrowers. In most cases we are able to improve the borrowers situation and give them a fresh start which is a great thing for us to give. Once performing these notes act just like the performing notes but typically have more protective equity due to the discount at purchase. Non Performing notes, once worked out and performing have a multitude of exit strategies making them attractive for investors looking for maximum returns and flexibility.