Guide to Buying Note Partials

What is a Note partial?

Note Partials

A Beginner’s Guide to

Passive Note Investing Made Easy

Note investing can be a great way to invest in real estate without the risks associated with property ownership. One way to invest in notes is through a partial note purchase, also known as a note partial. Note partials can be an especially great way for beginner note investors to get started in the world of note investing. Here’s what you need to know about buying and selling note partials and note investing made easy:

What are Note Partials?

Note partials are a type of real estate transaction where an investor buys a portion of an existing real estate loan or note. The investor receives a portion of the monthly payments and interest generated by the loan, while the original lender retains ownership of the remaining portion of the note. Note partials can be a way for investors to earn passive income without the hassle and risks associated with physical real estate ownership.

**We go into much more detail on partials in our Advanced Note Investing Training Series.**

Benefits of Buying and Selling Note Partials

There are several benefits to buying and selling note partials, including:

• Passive income: Buying note partials can provide investors with a regular stream of passive income, while selling note partials can generate cash flow from the sale.
• Reduced risk: Note partial investing can be less risky than owning physical real estate, as the investor is not responsible for the management and maintenance of the property.
• Higher returns: Buying and selling note partials can provide higher returns than traditional fixed-income investments.

Note Partials for Beginner Note Investors

Note partials can be a great way for beginner note investors to get started in the world of note investing. Here’s why:

• Low minimum investment: Note partials can be purchased with a relatively low minimum investment, making it accessible for beginner investors.
• Passive investing: Note partial investing can be a passive investment strategy, as investors can earn passive income without the day-to-day responsibilities of property management.
• Reduced risk: Note partial investing can be less risky than owning physical real estate, as the investor is not responsible for the management and maintenance of the property.
• Opportunity for higher returns: Buying and selling note partials can provide higher returns than traditional fixed-income investments.

How to Structure a Note Partial

When structuring a note partial, it’s important to consider the terms of the original loan or note, the borrower’s creditworthiness, and the desired investment return. The investor will typically purchase a portion of the remaining payments on the note at a discounted rate.

Straight Partial

With a straight partial, the investor purchases a fixed percentage of the remaining payments on the note, which may include interest and principal. The investor receives their portion of the payments as they are made by the borrower. This is the simplest form of note partial.

Balloon Split Partial

In a balloon split partial, the investor purchases a percentage of the remaining payments on the note, but also has a stake in a balloon payment due at a future date. For example, if the original note has a balloon payment of $50,000 due in 5 years, the investor may purchase 50% of the remaining payments plus 50% of the balloon payment. This type of partial note can offer a higher return on investment but also carries more risk.

Split Payment Partial

In a split payment partial, the investor purchases a percentage of each payment made by the borrower. For example, if the original note requires monthly payments of $1,000, the investor may purchase 50% of each payment, or $500 per month. This type of partial note can provide a steady stream of income for the investor.

Reverse Partial

In a reverse partial, the investor purchases the final payments on the note first and then works backwards to purchase earlier payments. For example, if the original note has 60 monthly payments of $1,000, the investor may purchase the final 20 payments for a discounted rate and then purchase the remaining 40 payments at a later date. This type of partial note can offer a higher return on investment but also carries more risk.

50/50 Partial

In a 50/50 partial, the investor and the original lender split each payment made by the borrower. For example, if the borrower makes a $1,000 payment, the investor receives $500 and the original lender receives $500. This type of partial note can provide a balanced risk and return for both the investor and the original lender.

10 for 12 Partial

In a 10 for 12 partial, the investor purchases 10 of the next 12 payments on the note at a discounted rate. For example, if the borrower is scheduled to make 12 monthly payments of $1,000, the investor may purchase the next 10 payments for a discounted rate, receiving $10,000 immediately, and then receive the remaining 2 payments at face value. This type of partial note can provide a quick return on investment but also carries more risk.

When structuring any type of note partial, it’s important to consider the terms of the original loan or note, the borrower’s creditworthiness, and the desired investment return. The investor should also review all documentation related to the note partial and seek professional advice if needed.

What Documentation is Needed for a Note Partial?

When buying or selling a note partial, documentation is required to transfer ownership of the note portion. This typically includes a purchase agreement, promissory note, and mortgage or deed of trust.

What Happens if the Note Partial Defaults?

If the borrower of the note partial defaults on their loan, the partial note buyer may experience a reduction in their expected returns or may lose their investment altogether. However, in some cases, the seller of the note partial may offer options to the buyer to help mitigate the impact of the default.

Buying the Note Partial Back at Schedule B

One option that may be offered by the seller is to buy the note partial back at Schedule B. Schedule B is the original price paid by the note partial buyer for their percentage of the note. Buying the note back at Schedule B ensures that the buyer receives their initial investment back, minus any payments that may have been made before the default. While this option may not provide the expected returns, it can help to minimize losses.

Replacing the Note with Another Partial of Equal Return

Another option that may be offered by the seller is to replace the defaulted note partial with another partial that offers an equal return. This may involve the seller finding another note partial that meets the buyer’s investment criteria and offers a similar return on investment. This option allows the buyer to maintain their investment portfolio and expected returns.

It’s important to note that the options offered by the seller may vary and may depend on the specifics of the defaulted note partial. As with any investment, there is always a risk of default, but having options available can help to mitigate that risk.

How Note Partials are Amortized with Schedule B and Master Level Partials

Note partials can be amortized using a Schedule B, which outlines the portion of the note purchased by the investor and the remaining payments owed to the original lender. For larger note partial transactions, master level partials may be used to aggregate multiple partials into a single investment.

JKP: A Buyer of Note Partials

JKP is a reputable buyer of note partials. As a note investor with years of experience in the industry, JKP can help connect investors with opportunities to buy or sell note partials that align with their investment goals and risk tolerance.