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Promissory Note Investing – Principles And Tips

Because of the uncertainty of the stock market, many investors are looking for safer and more predictable ways to invest their money. Promissory Note investing, which is also know as Private Money Investing, and Hard Money Investing, offers an individual the opportunity to earn safer, more predictable, and higher returns on their money.

Promissory Note investing is fairly low risk because the loans are backed by the appraised value of the collateral security plus the promise to pay of the borrower. Generally, the loans are conservative–at about 65% of the appraised value of the security. In case of a foreclosure, the property is sold to recover the funds. The borrower’s promise to pay and credit provide an additional measure of protection and an exit strategy. Additionally, hazard policies (fire, hail, wind) are insuring the property. The title to the property and the note holder’s interest is also covered by insurance-title insurance and lender’s insurance. This is the correct way that the investment is structured.

Private Mortgage Notes provide borrowers with an alternative to traditional bank financing for real estate properties. A borrower may not want to pursue bank financing due to time constraints, credit worthiness, or other factors, so they look for individuals or groups to finance their investment. Investors/lenders will take on the risks of lending, and in exchange, will receive a higher than normal interest yield on their investment.

Yields for private mortgage notes are generally higher than the traditional investments available. Return rates of 9% to 15% are typical. The more risk the lender is willing to accept, the higher the return expected. Generally, you want to be listed as the first position lien holder on the property-the first mortgage. You should fully understand the circumstances of a particular note investment before determining the amount of risk you are willing to accept. Take your time and get all…

Read More…. by Lawrence Tepper

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