Interested in flipping mortgage notes? Yes, buying notes can be a great way to get consistent cash flow. But, there are times when getting a quick cash infusion makes sense.
When most people consider flipping mortgage notes, they do so to get immediate cash to fund a deal or to pay for an unexpected event.
If you have ever seen any of the popular house flipping/rehabbing TV shows on HGTV, then you are probably familiar with the concept of flipping real property. However, there is a difference between flipping a house and flipping a mortgage note.
House Flipping Vs Note Flipping
Traditional house flipping usually involves the following. Searching for a house that needs repairs. Calculating the after-market value (ARV) after those repairs are made. Buy that house at a discount price and then renovate to sell for a premium to an end buyer for a significant chunk of cash.
Flipping can also mean wholesaling a property. You locate a distressed property. Either pay it in cash from owner looking to sell quickly at discounted price or you can get the property under contract and assign mortgage to another investor buyer. You take a cut of the money for connecting seller and buyer.
Flipping mortgage notes is similar to wholesaling a property. However, you are simply exchanging paper and not actual real estate. There is no conveyance of title or property ownership.
Note Broker Vs Note Dealer
A note broker is a middleman who connects note buyers and sellers for commission. Certain states have regulations regarding brokering. In fact, some states require a license to act as broker.
A note dealer is an individual who buys notes as investor and then sells that note to another person. There is no time limit when it comes to buying and selling meaning – one can own a note for one day and then sell as quickly as a day later.
As a dealer, you do not have to get licensed to buy and then sell your note – hence avoiding licensing regulations.
Flipping Notes as a Dealer
Start by locating a good quality note. You can find notes a variety of ways. Once you have a solid mortgage note to sell, locate an end buyer to step into your shoes and actually purchase the note.
It helps to have a buyers list already on hand by maintaining a database of other investors who you know buy and sell notes. Get to know their buying criteria (locations, price range, types of property commercial/residential, etc.)
Next, get the note under contract. Remember as the dealer, you are on paper the buyer and are entitled to a due diligence period usually 7-10 days to vet the note. During the due diligence period, contact your chosen buyer and present the deal at slightly marked up price from your purchase price.
When flipping notes as a dealer, there is no need to use your own money. Use the buyer’s money to fund the deal.
For the transaction, there are two sets of transfer documents. One set is the transfer documents you have transferred in own name/entity name from the seller. The end buyer wires to funds to the seller.
Then, you can complete another set of transfer documents to the note buyer. Just make sure that everything is recorded properly with the county of record.
This method can help you avoid appearing as a broker and coming against any state legal restrictions. The tricks to buy and own the mortgage note for a short time and simply sell to another investor for quick profit.
How much you make depends on the deal. For example, you buy a note at 70K and sell to end buyer for 75K. Your profit = 5k.
As you can see, flipping mortgage notes is one the easiest methods to get immediate funds!
