2 min read

Make Money By Taking “Notes”!

You WIN when they pay, You WIN when they don’t. That’s real WIN-WIN money, right off the bat!

A special category in the big league is investing in Notes. It's a paper world

on top of the brick and mortar world of real estate. The real estate is not

owned by the note holder: the note holder has a lien position against the

real estate. If the borrower breaches the terms of the loan agreement, the

lien holder can foreclose upon their interest and acquire title to the

property.

lien

/liːn,ˈliːən/ noun law

a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

"they shall be entitled to a lien on any lot sold"

What is a Note?

The note, by itself, is simply a promise to pay and is not secured by collateral. In a financed real estate transaction, the note is secured through a security instrument. This is either a mortgage or deed-of-trust, depending on the state. The security instrument ties the note to the deed as a lien on the property as collateral. It also spells out the lenders recourse (foreclosure) should the borrower fail to pay.

What is Note Investing?

Note investing: the note is purchased with its security instrument. In other words,

investors purchase the secured debt and become the lender, after which they are entitled to receive payments from the borrower. Generally speaking, note investors purchase notes at a discount to the remaining principal balance.

Why would someone sell at a discount? The simple answer is sometimes life circumstances ask for less money right now instead of more money later.

It’s that simple. Anything else is just " complicated babbling" on the same principles. So as we formerly explained in the Blog on Hold or Flip? as a strategy for your real estate, similar strategies can be used with notes too! If you’re still hungry for more and want to soak & dive deeper check out the formula.