Selling real estate notes is the newest investment product on the open market, and they have seen steady growth in popularity in recent years.
Real estate notes are created when two parties reach an agreement on a transaction allowing one party to borrow money in order to purchase real estate. No matter who financed the loan initially, the owner of the real estate note will receive repayment from the borrower.
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Real Estate Notes: What are They?
Notes are essentially agreements between a borrower and lender, where the borrower agrees to repay the lender according to the terms outlined in the note. In particular, real estate notes are promissory notes secured by real estate and are different from real estate funds.
Each real estate note consists of two parts: a promissory note and a lien. The terms of the loan are outlined in the promissory note. Liens, such as mortgage deeds or deeds of trust, are separate documents recorded against real estate titles in county land records.
In contrast, mortgage notes don’t give you ownership over a property like they do with hard real estate purchases. Your role becomes that of a bank in this transaction and you become the borrower’s new creditor.
How Real Estate Notes are Used
There are a number of reasons why notes are used in real estate. Notes are issued by banks and credit unions when they provide a homeowner with a mortgage or second mortgage. In the course of lending money to real estate investors, hard money and private lenders originate real estate notes. In some cases, sellers provide seller financing to the buyer by carrying a note.
Real estate notes ensure that the lending party will be repaid when a party provides loan financing for the purchase of a home. You can also buy and sell real estate notes on the open market if you wish to profit from the loan repayment.
The secondary market offers all of these types of real estate notes:
- Owner-occupier 1st and 2nd Mortgages
- Investment Property Loans
- Seller Financed Notes
- Hard Money and Private Lending Notes
Selling Real Estate Notes
A real estate note can be a significant investment, especially since interest rates are so low right now. The interest rate on performing notes is high, and they pay a monthly income. Passive investors often use them to house retirement funds as an alternative to traditional investments.
You may ask, “why should I sell my real estate note”? Selling your real estate note can be beneficial for a number of reasons. This has the obvious advantage of freeing up an immediate lump sum of cash that can be invested or used for other purposes, such as investing or needing more cash for urgent expenses.
Among the other advantages are:
- Noteholders can reduce their future payments if they decide to sell their notes by eliminating the risk and hassle of a future foreclosure.
- Investing or purchasing major items is possible due to their liquid financial position.
- The debt of those who pay off high-interest credit cards and other debts will be able to be paid off.
- Their budget will not be affected by life’s small expenses with the monthly payments they receive.
- When their mortgage is at its highest value, liquidating their note investment at a low rate will maximize their returns.
The various offers that buyers make for your note need to be weighed carefully. When it comes down to it, the value of real estate assets can change over time, depending on the national interest rate.
Getting Started with Real Estate Investments
It is relatively easy and straightforward to purchase notes for real estate. A note can be bought using the funds in an individual retirement account (IRA), equity, or funds you provide yourself. Notes may also be purchased in installments or in full, and most lenders require income statements.
It is common to buy and sell both performing and non-performing notes in the secondary mortgage market. It is also possible to purchase notes through banks, private equity firms, and brokers, or through individual contacts. The easiest way to find notes is to do so on an online exchange.
When you work with our team, you can learn more information about selling a real estate note and other investment opportunities. Don’t hesitate to reach out, get in touch with us at 949-881-7128 at Saint Investment Group today!
Frequently Asked Questions:
Finding a prospective buyer is often required to sell a real estate note. In exchange for payment, the note seller transfers ownership of the note to the purchaser.
Typically, this is accomplished via a broker or directly between the parties.
The transaction may also necessitate the execution of certain financial and legal documents.
To locate a buyer for a real estate note, one can use a broker that specializes in buying and selling notes, explore internet markets that connect buyers and sellers, or personally approach possible investors.
Several factors, including the creditworthiness of the borrower, the terms and interest rate of the note, the current real estate market, and the length of time left on the note, influence the selling price of a real estate note.
The occupancy status of the property, any ongoing liens or encumbrances on the property, and the general financial performance of the underlying property might further impact the value of the note.
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.