Availing of a real estate membership in an investor market has advantages, which include exploring untapped opportunities for real estate investing. One such opportunity is secondary mortgage notes.
Background on the Secondary Mortgage Market
The real estate mortgage market is composed of two sub-markets: The primary market and secondary market.
This is where loans originate. Mortgage lenders loan money to borrowers to finance real estate dealings. Lenders then make their profit on the fees used to fund the loans. These loans are sold in the secondary market.
This market is made up of public and private investors who buy mortgage notes from the primary sector. Once the notes are bought, mortgage lenders replenish cash reserves, so that they can create more mortgages for other consumers. In the meantime, investors will get money from the interest mortgages charge.
The major associations involved in the secondary market are the following:
• Federal National Mortgage Association (“Fannie Mae”)
• Federal Home Loan Mortgage Corporation (“Freddie Mac”)
• Government National Mortgage Association (“Ginnie Mae”)
Benefits of Investing in Secondary Mortgage Notes
People invest in secondary mortgage notes for specific reasons. Below is the list detailing why they invest in it:
• They could not perform traditional financing because they either have credit that is too low, or downpayment that is insufficient.
• They see secondary mortgage notes as a cheaper borrowing option.
• They could use the notes as payment for a house while they fix their credit problems.
Since they belong to an untapped market and are not as recognized as full mortgage payers, they have potential investment opportunities. This is something most investors do not realize at the moment, so you can capitalize on these buyers early on. You can network with these set of borrowers at local real estate associations.
Ways to Invest in Secondary Mortgage Notes
To get your foot in the door with secondary mortgage notes, here are some ways to do that:
- You can make the notes yourself. By making your own notes, you are also making your own population of buyers, which have the capability to pay prices which are above-market on both loan and property.
- You can purchase performing notes and acquire the monthly income. Through constant collection of the income from performing notes, you will be able to collect more than what you originally shelled out.
- You can avail of non-performing notes, find a way to revive them, and either get the income off of it or sell them to another buyer. To revive the note, the investor coordinates with the borrower so that they start paying the monthly note again. Upon the note’s restoration to performing status, it can be sold at a higher value that what it was purchased for.
Secondary Mortgage Market as a Key to Your Success
If you are in real estate, investing in secondary mortgage notes can provide you with a profitable and wonderful opportunity. The key here is networking with other secondary market investors and insiders in your area. By joining established real estate association and constant interaction with fellow members, you can get the ball rolling on serious secondary mortgage note investing and selling.