WHAT ARE REAL-ESTATE NOTES?
A real-estate note is a legal document that outlines the details of a loan used to buy a property. When someone takes out a mortgage, they agree to repay the loan over time, and the mortgage note is the written agreement that spells out the terms—like the loan amount, interest rate, and payment schedule. It’s essentially the borrower’s promise to repay the lender and serves as proof of the debt. The note is backed by the property itself, meaning the lender can take the property if the borrower stops making payments.
For investors, mortgage notes can be a smart way to earn steady income. When an investor buys a mortgage note, they’re essentially stepping into the lender’s shoes—collecting the payments the borrower makes on the loan. These payments include interest, which becomes the investor’s return. The interest rate written into the note plays a big role in how much the investor can earn, so it’s an important detail to look at when deciding whether to buy.
TYPES OF NOTES
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Performing mortgage notes are mortgage loans where the borrower is consistently making on-time payments according to the agreed terms. These notes offer investors a more stable and predictable income stream with lower risk.
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Non-performing mortgage notes are mortgage loans where the borrower has stopped making payments or is significantly behind. These notes are riskier but can be purchased at a discount, offering investors the potential for higher returns through loan modification, resale, or foreclosure.
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Residential mortgage notes are mortgage loans secured by single-family homes, townhomes, or small multi-family properties. When an investor purchases a residential note, they receive the right to collect the borrower’s monthly payments, which include principal and interest.
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Commercial mortgage notes are mortgage loans secured by income-producing properties such as office buildings, retail centers, warehouses, or apartment complexes. Investors who purchase commercial notes earn returns from the payments made by the property owner, often with higher loan amounts and more complex terms than residential notes.
reasons to sell your note
Immediate Cash Access
Receive a lump sum payment upfront, allowing you to invest elsewhere, pay off debt, or meet other financial needs without waiting years for monthly payments.
Reduced Risk and Responsibility
Eliminate the risk of borrower default, late payments, or property issues, and remove the burden of managing loan servicing and collections.
Greater Financial Flexibility
Simplify your financial situation, increase liquidity, and create opportunities to diversify your investments or pursue other financial goals.— Quote Source