If you’re looking to diversify your investment portfolio and potentially earn passive income, investing in real estate notes can be a lucrative option. Real estate notes, also known as mortgage notes or promissory notes, are debt securities that represent the loan agreement between a lender and a borrower. Investors can purchase these notes from banks, mortgage companies, or private individuals, and earn interest payments on the loan amount.

Types of Real Estate Notes

There are two main types of real estate notes that investors can consider:

Performing Notes

Performing notes are loans where the borrower is making regular and timely payments of both principal and interest. These notes are considered less risky as they have a lower chance of default.

Non-Performing Notes

Non-performing notes are loans where the borrower has stopped making payments, leading to default. These notes can be purchased at a significant discount, and investors can either work with the borrower to reinstate the loan or foreclose on the property.

Steps to Invest in Real Estate Notes

  1. Educate Yourself: Before diving into real estate note investments, it’s essential to understand the risks and rewards associated with this asset class. You can attend workshops, read books, or seek advice from experienced investors.
  2. Set Your Investment Goals: Determine your investment objectives, whether you’re looking for regular income, long-term appreciation, or a combination of both. This will help you narrow down your investment options.
  3. Find a Reliable Source: Research and identify reputable sources to purchase real estate notes. You can approach banks, credit unions, online platforms, or specialized note investment companies.
  4. Perform Due Diligence: Thoroughly analyze the underlying property, borrower’s financials, loan terms, and any potential risks associated with the note. Conduct a title search to verify ownership and check for any liens or encumbrances.
  5. Negotiate Terms: Negotiate the terms of the deal, including the purchase price, interest rate, payment schedule, and possible exit strategies. Ensure that you have a clear understanding of your rights and obligations as a note holder.
  6. Monitor Your Investment: Stay updated on the performance of your real estate notes, including payment status, property condition, and any changes in market conditions. Be prepared to take proactive measures if the note becomes non-performing.

Benefits of Investing in Real Estate Notes

Investing in real estate notes offers several advantages, including:

How to Invest in Real Estate Notes
  • Passive Income: Real estate notes can provide a steady stream of passive income through interest payments.
  • Diversification: Adding real estate notes to your investment portfolio can help diversify your risk across different asset classes.
  • Control Over Investments: As a note investor, you have more control over the terms of the loan and potential outcomes compared to traditional real estate investments.
  • Potential for High Returns: Non-performing notes purchased at a discount can offer high returns when successfully resolved or liquidated.

Overall, investing in real estate notes can be a rewarding venture for investors seeking to build wealth and generate passive income in the real estate market.

How to Invest in Real Estate Notes w/ Dave Van Horn