Mortgage Note Investing: The Buy and Flip Strategy
Buy and Flip notes strategy can be a profitable exit, once you’ve developed a strong network and you’ve got some substantial experience under your belt.
Many institutional note investors employ a dual strategy whereby they buy and hold specific notes but opportunistically buy and flip or retrade to others. Retrading notes are possible regardless of whether the loan is performing, non-performing, or sub-performing. To effectively retrade notes, one of two things is generally true: 1) you can buy records at a discount to where they trade in the market, 2) you have a takeout investor that pays above-market pricing. Otherwise, it’s just difficult to create a spread or arbitrage on the retrade.
Another key to re-trading notes is to have reliable outlets for the notes. In other words, somebody that will buy the notes once you’ve bought them. One way to mitigate this risk is to have them take out investors, run due diligence alongside you, and close simultaneously. Alternatively, the take out investor can’t conduct due diligence sometime after the trade closes. This approach can introduce some uncertainty around a successful retrade. Like many short term investments, retrading isn’t always tax efficient. Especially, if the purchasing entity that you’re using isn’t structured properly. Fortunately, there are great tax advisers that can help you out in that department.
In closing, the buy and flip can be an excellent strategy for the more experienced investor.
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