If a person is looking for another way to invest their money; going into real estate appears to be a viable option. Real estate note investing is not as commonly known has the practice of “flipping” a house. When a person chooses to purchase the document/note for ownership of a home that individual is a position to make immediate profit. This scenario can work for both private and conventional real estate notes. A real estate note is the IOU on a property. This is generally a loan/note obtained from a lending institution promising to pay a certain amount to the lender plus a percentage for the loan.  A note can also be held by the property seller.  In this case, the seller agrees to sell you the property and you pay them direct so much per month plus interest until the agreed amount is paid in full.

These “notes” can be bought and sold.  Many times these notes can be bought for less money than is owed.  This difference can give you a yield higher than the original interest rate.

In this process of of buying real estates notes three factors needed to be considered and evaluated. They are the paper, the property and the payor.

The Paper:  This is the actual note document.  Make sure to get all the details about the original deal.  The balance owed, current interest rate, number of payments left etc.

The Property:  A current appraisal of the inside and the outside of the property is a must.  Know the value of this property before taking over the note.  It is also advised not to invest anything into the property until ownership of the note is established.  Find out if this is payor occupied or a rental.  If rented what is the rental income.

The Payor:  The last step in this process is gaining as much pertinent information about the person(s) paying on the note. It is good to know as much as you can about the credit worthiness of the individual(s) because when you own the note, you have become the payor’s bank.

Key Points:

  • 1Have legal documents drawn up in the state where you are buying the note for your own protection.
  • 2Don’t spend a dime without knowing the true cost.
  • 3Notify the payor of where to send their new payments.

The best appraisal is a complete one, inside and out.