Real Estate Note Investing

Real Estate Note Investing or note investing has become very popular in the last few years mainly due the large amount of non performing notes that have become available. Owner Carry back Note Investing has been around for decades and has always been a small part of the much larger subject of real estate investing. The most common form of note investing is real estate notes or mortgage notes as some people refer to them. A real estate mortgage note can be a much better investment than stocks or mutual funds.

Real Estate Note Investing Styles

There are 2 main styles of investing in notes. Owner Financed or Carry Back Real Estate Note Investing , this is where the seller of a property has carried back a promissory note during the sale of a piece of property. Non Performing Note Investing – This style of note investing has become very popular since the real estate crash of 2008. This mortgage note Investing style predominately focuses on finding notes that are in default and attempt to bring the note back into some form of performance. The majority of all non performing notes are Institutional notes from large banks such as Bank of America or Wells Fargo.

Types of Real Estate Notes

When choosing to invest in a real estate note you will come across many different types of notes, some of them will include.

Single Family Home Real Estate Notes – Owner Occupied

As the name suggests these are notes that are secured against a Single Family Home, these are generally the most desirable to note buyers and note Investors. The are normally the most secure form of notes and thus Investor prefer these over other forms of notes. Home owners typical are the payor on these types of notes and live in the home.

Single Family Home Real Estate Notes – Non Owner Occupied

This is a note where the note payor does not live in the real estate that they are making payments on. Since they are not living in the property, note investors or note buyers consider this a higher risk investment and will therefore discount the note more than if it was owner occupied.

Duplex,Triplex or Fourplex Real Estate Notes, non owner occupied

These notes are typically held when a Real Estate Investor sells a property to another real estate investor. The seller may carry part or all of the mortgage when the real estate investor sells to the Investor. Since this is non owner occupied the risk on this type of note is higher. If the note should go into default the payer in not going to loose his home, he is going to loose his investment. Since this is a higher risk investment the discount on this type of note is higher should the note holder choose to sell the note to a note buyer.

How to Get Started in Note Investing

As a mortgage note investor you are going to need some money or access to money to get started with your first note investment, many note investor start by using there self directed ira to invest in mortgage notes. The note business is not the easiest form of investing so you should take some time to learn the in and outs of note investing.

What is Note Investing?

Note Investing us exactly what is an investment strategy for buy and holding a promissory note, mortgage note, real estate note, business note or other form of notes. Many people who start in real estate investing have become very interested in note investing in the last several years. Mortgage note investments are often less of a hassle than a real estate investment as there is not tenants and toilets to deal with late at night. Many full time real estate investors have made the transition to full time mortgage note investor since the real estate crash of 2008 – 2010. Many note investor have been attracted to nonperforming notes.

What Qualities does a mortgage note investor need to have?

Do you hate rental property?

What is a Mortgage Note

A Mortgage note is often called a promissory note, the note is the actual promise to pay note and the term mortgage is the security instrument. Many people and websites combine both term into 1 word but really they are 2 documents involved, the mortgage and the promissory note.

What is a Promissory Note?

What is a nonperforming note?

What is a Security Instrument or Lien?

The security instrument attaches the note to an asset, so that in the case of a default a foreclosure can take place to attempt to retrieve owed monies. With out a security instrument or lien the promissory note is referred to as a unsecured note.



Trust Deed or Deed of Trust


Things every Note Investor should know

Real Estate Investing vs Mortgage Note Investing

Mortgage Note Investing Strategies

Performing Notes

Owner Financed Mortgage Notes

Non Performing Notes

What makes a good mortgage note

The components of a good mortgage, that makes a good investment and produces solid cash flow are as follows:

A good interest rate on the note typically around 7 – 10% and sometimes. Am interest rate of zero or very low is not a good idea as it will limit the market should you wish to sell the note at some point.

The note should be attached to a solid asset in most cases this is a piece of real estate.

The borrower on a note should have a somewhat decent credit score, above 620 is generally okay, and this is one of the benefits of owner financing for buyers.

The borrower should a monthly payment that they can handle.

Should a use a loan servicer or note servicing company?

The short answer is yes. There are many rules and regulation to a bid by so it is advisable to use a good note servicing company to collect mortgage loan payments.

How is performing mortgage note produced?

An owner financed note or seller financed note is created when an owner of a piece of real property decides to the sell without the use a conventional loan from a bank. In the case of seller financing the owner carrys the note or carries the paper and essential takes on the roll of private lender.

Mortgage Note Investing Risks

Trying to find a good note investment opportunity can be very risky, non performing mortgage notes might see a great way to get started but beware there are many things that can and will go wrong.

Do I need to be an accredited Investor?

What is the Secondary Mortgage Market?

Once you have acquired a note, you the note owner may wish to sell your note or performing note on the secondary market.