My favorite investment strategy is buying distressed mortgage notes for pennies on the dollar! There are many different real estate investment strategies but the one that I have found to be the lowest risk and highest reward (with the right due diligence and work) is distressed mortgage notes.
Buying distressed mortgage notes is not as hard as it sounds. Banks and hedgefunds will often sell mortgages that are underperforming to private investors for a huge discount usually to just write them off their books. The private property investor then must try to get the mortgages 're performing' (e.g. get the owner to pay!) in order to make back his investment and some profit. This sounds horrendous - who wants to deal with some delinquent owner - but it can be easier than it sounds. Often if the investor lowers the monthly payment for the owner to less than the local rent, they are highly incentivized to remain in the property and make timely payments.
The return on investment can be very large for these investment deals. Typically an investor can expect to make their money back within 1 year! This is a fantastic rate of return with the average ROI per month around 5% - 8% after all the associated fees are paid. This sounds to good to be true - but it is true! The difficulty comes in finding the deals. You have to bid for a lot of different notes before you can expect to win one. Not all of them are worth winning so you have to know how to do the due diligence required to separate the weeds from the flowers. We have partnered with an expert in this exact process to maximize our chances of success with this investment strategy.
The idea is too buy the notes for cash flow. A property note that costs you $3000 may well return $500 a month for 12 years. So you can imagine that if you have hundreds of notes the massive amount of cashflow that is possible! It is a truly amazing investment strategy and one that is still relatively unknown. It is much easier for investors to buy a conventional mortgage on a rental property but the cash flow from this type of deal is terrible compared to mortgage notes.
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