When it comes to notes, it’s important to understand the concept of asset-backed notes vs. non-asset-backed notes.
“Asset-backed” means that if someone defaults on the loan, the lender receives something in
return as payback. The note is “collateralized.” In the case of a mortgage, the loan is
collateralized against the actual home. If you default on your mortgage payments, the bank will
foreclose on the property and take ownership.
On the other hand, if you fail to repay non-asset-backed notes like credit cards, the credit issuer
has no legal recourse except to damage your credit score. No collateral is repossessed or
foreclosed, but failure to repay can ruin your ability to get other loans.
In the case of federal student loans, if you default on the loan, the government can garnish your
wages, go after your tax refunds, or even withhold social security checks. There may not be any
upfront collateral, but they have ways to get some of their capital back.
Ways to Invest in Notes
● Performing Real Estate Notes
● Non-Performing Real Estate Notes
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