In this issue of The Note News, we would like to share with you some very good questions asked by a potential investor who recently contacted The Note Factory. This client was asking all the right questions and we think it will be very helpful not only for future investors but also our current investors to read through this conversation. We hope you enjoy and gain value from this post.
*Investor's questions are in bold and our answers follow.
1. Who owns the property?
We own the property. No liens on them as we pay cash when we buy. When we sell the note you will own the note free and clear.
2. What if the borrower defaults?
Out of over 200 notes created we have had only 1 foreclosure and that was due to a death and we did it to clear up title. We have had a handful of “Deed in Lieu’s” and a couple of bankruptcies.
Deed in Lieu- The good thing about this is they sign the house back over to you and you have minimal lawyer fees and get the house back quickly. We would then send our crews in to clean up and maybe do a minor rehab and resell the property for you thus creating another note. In all the cases this has happened our investors actually make out better and increase their return. We provide this service at no extra charge except what the contractors charge us plus a 1k sales fee to our sales team.
Bankruptcy- When someone files for bankruptcy they still have to make their payments on time or they will be discharged from bankruptcy.
3. What happens if YOU default/ decide to close your business?
We do not plan on closing our doors anytime soon. If something did happen there are servicing companies all over the U.S. that can service the note for you. They won’t provide the level of service we do but they will do what is necessary to collect payments etc.
4. Why is the rate fixed? Can it be floating?
We do not want to put our home borrowers in a situation that would cause them to not be able to afford the payments. We already charge 11.9% so there is not much room to increase the rate.
5. Can international investors (non-US citizens and non-residents) buy the notes on offer and what are the tax implications for an international investor like myself?
Yes. As far as I know there is nothing stating you cannot own real estate and or real estate notes in the U.S. I would check with your attorney though.
6. What is the minimum investment?
Our notes range from 60k-100k. Minimum investment can be as low as 60k.
7. Does the rate of return include the tax and insurance cost paid by the borrower or are these payments over and above the monthly payment to the investor?
When we “discount” the note to you in order to get the 12-12.5% yield is net to you. If you want us to service the note that is an additional 25$ per month per note and it will drop your yield to around 11.5-12%. Taxes and Insurance are escrowed and do not affect your yield.
8. What happens to the contract if the property is damaged/destroyed due to a natural disaster?
All our homes have insurance and are escrowed so that they will always have insurance.
9. What if I want to liquidate my investment before the mortgage matures? Can you find a buyer for the investor who wants to cash out?
Yes we could try and help you find a note buyer for your notes or even possibly buy them from you.
10. What's the location of the property?
Most of our properties are located in San Antonio Texas. San Antonio has and I feel always will be a great real estate market due to the demographics of the area.
11. How have the home prices behaved in Texas in the past 5 years and what's your outlook?
Texas, San Antonio in general has been fantastic and I see no reason for it to decline. My outlook is very optimistic and I personal invest long term in the San Antonio market. I feel that overtime the area will only continue to get stronger and stronger.
12. How do you guys make money/what are your fees for servicing?
We make money when we sell the note that we created. It is the difference in what we paid for the house and what we sold the note we created for. Servicing is 25$ per month per note.