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Real
Estate Loans & Notes:
If you are new to the world of real
estate a little back ground may be
needed to bring you up to speed:
There are two parts to real estate loans: 1) Mortgages
& Deeds of trust are used when
a property is sold without full payment.
The Mortgage or Deed of Trust is a
legal document that pledges the property
to the lender of the money as a security
of payment. 2) Notes are the legal
documents that obligate the borrower
to repay the mortgage loan and are
sometimes referred to as "promissory
notes". Since the note contains
the terms of the loan (interest rate,
period of time, etc.) and promise
to pay backed by the property itself,
and these notes have a “commercial
paper” market of their own.
In fact these notes have been
bought and sold as long as real estate
has been bought and sold, and they
are often preferred by the investor
that does not want the responsibility
of property management.
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The market for RE Notes is created as both banks, brokers,
and private parties sell their loan
portfolios on the open market to raise
cash. Many times lenders would rather
have cash than the promise to pay over
time. So they often discount the value
of these notes to make it more attractive
by increasing the yield for the buyer.
The individual investor, rather than
buying portfolio's for millions of dollars, can buy individual notes
in the amounts that you can afford.
Notes against secured property are a
solid investment offering a range of
returns, from modest to truly significant
yields. All the benefits of real estates
higher rates of return without the property
management headaches, and if you need
immediate cash you can sell them on
the open market. |
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The Example:
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Original a Loan:
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e.g. Buying a Note after1st Yr.
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Value of Property:
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$100,000
(Total app. Expected over 3 years $130,000)
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Amount of Loan:
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$50,000 1st (50% - 38% LTV)
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Price of Note (sold after 12 months)
= $48,000
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Terms of Loan
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3 yr.
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(Note to buyer valued @ 10.5% ROI for the last two years.)
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Interest
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10%
($5000 / yr. interest only – or $15,000 over 3 years)
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($5000 / yr. interest only – or $10,000 over 2 years)
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Also
in this issue:
Federal Pension Law (1)
Personal Finance Planning
(2)
Investment Feature of the
month (3)
Future Topics (4)
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