What Is A Real Estate Note?

Ever heard about real estate investing? Note investing in the world of real estate is very real and quite appealing for most new investors. Since it’s so simple compared to investing in other real estate segments. But what is a real estate note in the first place? Is it as simple as you thought? 

Real estate notes are vital for any well-diversified investment portfolio for several years. So without wasting any time, let’s check how real estate notes work and what the impact can be for new investors. 

Let’s get started…shall we? 

Answering, What Is A Real Estate Note? 

Before you can think about buying real estate notes, let’s find out what is a real estate note first! These notes are everywhere, and there are chances that you have already been using these frequently. In fact, all types of credit and debt agreements use these notes, including student debt, personal loans, dollar bills, and even car finance. 

Simply put, a real estate note is basically an IOU. It’s an agreement that is made between lenders and borrowers wherein the borrowers promise to repay the money loaned following all the terms and conditions as deemed. These use real estate properties as collateral for the money being lent. 

In fact, there are two different parts of each real estate note. These are as follows,

• A Promissory Note, and
• A Lien. 

While the promissory note comprises all the terms and conditions of the load, the lien, generally known as a deed of trust or mortgage deed, happens to be a completely separate instrument recorded within the country land data against any real estate property. So let’s find out more about these aspects. 

The Promissory Note:

So now you know what is a real estate note! Let’s find out some more about promissory notes before we can proceed any further with note loans.

Each promissory note differs from the other simply because of the specific set of terms and conditions for all individual parties involved when the load is being taken. The note must include the following assuming its an absolute minimum, 

• The loan’s total amount,
• Monthly payment,
• Loan term,
• Origination date,
• Maturity date,
• Interest rate (after default),
• Interest rate (before default),
• Lender’s address,
• Borrower’s address,
• Delayed payment provisions,
• Payments to be applied,
• Usury Savings Clause, and 
• Remaining Balloon Payments.

Promissory notes comprise waiver clauses to which the borrower and lender agree. These notes also comprise waiver clauses – both the borrower and lender agree to these! There are multiple waiver clauses that you will find commonly within the real estate industry. 

• Notice,
• Demand,
• Intent notice for acceleration,
• Acceleration notice,
• Maturity protest,
• Anti-deficiency statutes,
• Protest notice, and
• Foreclosure notices. 

Promissory notes are held by lenders and often returned to borrowers with the ‘paid in full’ mark during the repayment of loans. Real estate note sales, including both selling and buying, take place in open markets freely. 

Real Estate Note Investing:

Finding out what is a real estate note can only lead to the next topic of discussion – real estate note investing!

Investors of real estate make money by note investing – yes, but how? For example, money can be made by purchasing a mortgage note from a lender who doesn’t want it anymore. Essentially, this purchase is seen as a debt. Subsequently, investors will collect both mortgage payments as well as interest, just like a bank. 

Most people think of this as a genius investment strategy. The concept of note investing appears to be simple on the surface – an easy method of earning a passive income. However, most appearances are deceptive and successful investors will tell you the skills you will need to make the most out of note investing. 

It is vital to understand how note investing is also about risk tolerance. 

Performing Vs Non-Performing Real Estate Notes:

Just like real estate or even mortgage note investing is about risk tolerance, there’s another segment in this world that you have to be familiar with! If you want to purchase real estate notes and make a substantial investment, it is vital that you find out about performing and non-performing notes. You just have to scroll down to find out!

Performing Notes:

Real estate notes are called performing notes when all related payments are up-to-date. Simply put, investors purchase these notes with their standard monthly income. When the entire financial markets have become volatile, or the rates of interest are low, the high yields of the performing notes become especially attractive.

Non-Performing Notes:

Real estate notes are called non-performing when the borrower discontinues their payments on the note. In case there’s a delay of 30 days from the borrower’s end, the note becomes sub-performing – after 90 days, the note becomes non-performing. When lenders run out of all their pre-foreclosure chances, they may sell the note at discounted rates. 

Frequently Asked Questions (FAQs):-

Check out the most frequently asked questions related to what is a real estate note mentioned below. 

And It’s A Wrap!

So now you know what is a real estate note! What’s next? Are you already googling ‘sell my real estate notes?’ Then stop! Because if you are new to the world of real estate investing, we suggest you take some time and do your research – although these might appear to be simple investments on the surface, there’s no ignoring the risks that come associated with them.

Tell us what you think about real estate note investing. Also, don’t forget to share your experiences with real estate investing in the comments below.

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