How to Invest in Real Estate Notes (4 Proven Strategies)

Investing in real estate notes is becoming a hot topic and with good reason. Investing in real estate notes provides can provide stable cash flows secured by real estate without the three T’s “Tenants, Toilets, and Trash.

Investing in Real Estate Notes

Everyone knows about the great wealth that can be made from investing in real estate but very few people know that you can make the same profits without the hassle of owning the actual properties.

In this article we will show you how owning the note or mortgage on the house has proven to be a cheaper and most times, more profitable way to generate cashflow from real estate.

You will learn:

What are real estate notes

Okay, so you probably already know this but just to make sure we’re covering our bases, when we talk about a real estate note, we’re talking about a promissory note. A promissory note is the note or paperwork that describes the loan or mortgage or deed of trust in the end that binds the borrower to pay and gives the property or the real estate as collateral.

Investopedia defines a promissory note as a financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Therefore a real estate note can be traded, bought and sold just like any other asset that guarantees payments or other rights with regards to the collateral.

So when we talk about investing in real estate notes, what we are talking about is buying the paper. This paper binds a borrower to pay the debt they’ve taken in order to acquire the real estate, or, in absence of payment gives you – as the real estate note holder – the right to collect.

Why invest in real estate notes

Real estate notes can provide reliable consistent monthly income but that’s really just the beginning of what’s attractive about investing in real estate notes.

When you invest in performing real estate notes you get the monthly payments like you would if you owned the real estate instead of the note. But instead of dealing with tenants, evictions and property maintenance and upkeep your only obligation is to receive the money. You have no rights or reason to contact the borrower or any of the occupants unless there’s non-payment of the note or if the covenants in the note are violated. Otherwise, owning the real estate note is very much a passive investment.

Investing in non-performing real estate notes is a different skill to learn and provides different opportunities than a performing note. If a real estate note is non-performing that means that it has not been paid according to terms. Typically, a non-performing note is defined as one which is 90 days or more past due.

Investors buy non-performing real estate notes for the upside meaning that you can technically by a number from me at a discount which will provide some opportunity for additional profits as well as creative exits. However, as with any investment you take on more risk when you invest in a non-performing real estate note. Rather than go in-depth here into the various strategies here are a couple of links to more information about non-performing notes.

How to Find and Buy Non-Performing Notes [A-Z]In this article I’m going to cover how to find non-performing notes, how to buy them, you’ll learn some strategies that others take with non-performers and there’s some downloadable bonus material.

How do you buy or invest in real estate notes

We cover buying notes quite extensively here at Buy Notes from Banks [Complete Guide]. But the process is really quite simple first you have to find the note then you do your due diligence next to fund and close on the Note and finally you place your note probably with a servicer who receives the payments for you and handles borrower communication.

We’re frequently asked how one can get started investing in real estate notes without any money and we’ve covered that topic extensively both in 5 Ways to Buy Notes with No Money and in this article where we show you 5 proven note-flipping strategies.

Unlike traditional real estate you won’t be able to get a loan to buy real estate notes. Investing in real estate notes is capital intensive which means that you will need cash in order to do it and for those just starting out that typically means finding other investors or investment partners.

Investing in real estate notes is no different from any other investments. You should make sure you understand what you’re investing in, do your due diligence both on the business of investing in notes as well as in the individual notes and you should understand that no investment comes with zero risk. However investing in debt rather than on the equity side of real estate is much less risky and here’s why.

How investing in real estate notes is different than investing in real estate

non-performing notes risk


To understand the risks associated with real estate note investing you need to understand what a capital stack is.

Debt investors or real estate note Investors are at the bottom of the stack while the owner of the property or the real estate investor is at the top of the stack.

Even though the real estate investor enjoys all of the appreciation in a property they are also exposed to market downturns and the loss of equity in a correction impacts the real estate investor much more deeply than the real estate note investor.

Where to find real estate notes for sale

In this article 12 Places to Buy Mortgage Notes Online we extensively cover the various places that you can buy real estate notes. To give you a quick synopsis you can buy notes from exchanges or marketplaces, from private note holders individually, from private Equity or hedge funds who purchased them in bulk from Banks and other lenders, or you can buy them Direct from Banks or credit unions once you understand the process. In fact that’s exactly why we built BankProspector.

Buying real estate notes from banks

Buying real estate notes direct from Banks can be one of the most profitable avenues for acquiring these assets. but before you try this you should understand the game. You can start by reading this article on how to buy notes from Banks and if it sounds like the kind of business you’d be interested in you can find further training at the Academy and our amazing mortgage note sourcing software.

4 Tips for real estate note investing

There is more than one way to get into the note buying business and find profitable residential real estate notes to invest in. Perhaps you have run into new note buyers in the past or those trying to sell notes and have even invested in some type of course. However, if you really plan to make great money through note buying and actually enjoy more free time than at your old 9-5 you really have to weigh your options, know what finding notes involves and the what the real ROI you can expect on your time and investment.

1. Advertise
Starting your own note buying business can be an exciting prospect. It can be a great ego boost to build your own company and get your name out there, but watch your expenses. There are many ways to advertise and market for notes. You can run newspaper ads, build a beautiful website, blog, get into social media, tell everyone on Facebook about what you are doing, run Google Adwords campaigns, have business cards printed and network all over town and perhaps even go as far as running your own TV commercials.

However, there are two problems with this approach. First it can require a heavy upfront investment for several months before you have made a cent. Secondly, it is unlikely that you are going to see a flood of great leads in the same types and volume that some of these advertising channels may produce for other products or services. You may generate a lot of phone calls but if they are all junk… you are just burning your time. This doesn’t mean you shouldn’t do these things; just adjust your ROI expectations accordingly.

2. Go After Individual Properties
For years, even before the bubble burst some forward thinking note buyers were taking a proactive approach and honing in on specific properties which looked appetizing, some went out to take them down individually. This offers some targeting and perhaps a more direct approach than sitting back waiting for note deals to fall in your lap but there are a lot of working parts and it can still involve direct mail, a lot of phone calls and time delays.

3. Targeting Investors Creating Notes
Obviously other real estate investors who are buying and selling homes and creating notes on a regular basis can be a great source to tap into. You will easily find plenty of these investors out there pretty quickly by surfing the paper and the web for those offering owner financing. They may not always have deals when you call but by reaching them early you can have the advantage of working with them to create notes that fit your model and are more profitable. The one caveat here is that some desperate investors are not above fabricating anything that will make them a dollar, so be sure to do your due diligence.

4. Going Right for the Gold
Now what if you could slash the time it takes to find notes to buy or broker and you could do it without having to invest an incredible amount of money in marketing each month or dealing with hundreds of unqualified prospects on the phone. Imagine how much more free time and money you would have. This isn’t actually that hard. Who has all the gold? Banks, so why not go right to them, they certainly have plenty of notes, some of them they would love to get rid of right now. By getting your hands on some quality software you can dig into these gold mines and filter your searches for those who have the notes you want, eliminating many hours and saving thousands of dollars a month. Get instant access to BankProspector today!

4 thoughts on “How to Invest in Real Estate Notes (4 Proven Strategies)”

  1. Thank you for helping me learn more about real estate notes. I like how you said that investing in notes can proved a reliable monthly income. My husband and I should consider investing is some real estate notes.

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