Have you ever wondered what it would be like to be the bank instead of the landlord? Owning the promissory note is a little different than owning the property. Property owners are responsible for the routine maintenance of the property. They will fix whatever needs fixing, and if they are like most, may even try to improve the property in hopes of gaining some sweat equity.
Property owners are responsible for the routine maintenance of the property. From cutting the grass to shoveling the snow, to replacing the roof. They will fix whatever needs fixing, and if they are like most, may even try to improve the property in hopes of gaining some sweat equity. After the purchase agreement is signed, they bear the weight of all the taxes, utility bills, and municipal fees. After all, they’re the “owners”.
Now, what are the banks roll in all of this? Well, they are one more rung up the ladder. The own the promissory note, which is the signed agreement for the owner to pay a stated sum owed on the property. The banks’ job is to collect payments and nothing more, and should the owner stop making payments, the bank takes back the property.
That’s why some burnt out flippers and landlords find the option of owning the promissory note instead of the property so inviting. You’re still investing in real estate but a lot of the headaches are gone.
That’s not to say the person owning the promissory note isn’t without risk. You may have to foreclose on a property which has expenses unto itself. You may have to sell the note at a discount based on the properties condition. It could take a while to go through a foreclosure depending on which state you’re in.
But these are all at least calculated risks and there are multiple exit strategies at the note holders disposal. After all, you can make the rules if you own the note. For instance just because a big bank doesn’t want to modify a loan or work with the buyer doesn’t mean you might not. Or if the property decreased in value, while a bank might let it go for penny’s on the dollar, perhaps it might make more sense to rent out the property and collect that income instead. There are plenty of tools in the old toolbox, you just need to choose the right one for your particular situation.
So which side of the spectrum would you like to be on? Owner or Note Holder?