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Yaroslav Davydov
Yaroslav Davydov

How To Buy Discounted Real Estate Notes

Real estate investment has long been recognized as one of the surest paths to wealth and financial independence. And one of the most attractive ways to make money in real estate is to buy and to broker notes.

how to buy discounted real estate notes


Privately held real estate notes are created at an estimated rate of nearly $100 billion per year in face value. At any one time, there are approximately 260,000 notes that are available in the United States. And new notes are created at a rate of nearly 40,000 a year.

As a broker/investor: You can find and buy the notes for your own portfolio, then resell them to private investors, recast them for greater profits, keep part of a note and sell part, or use notes acquired at a discount at their full face value as a down payment when you buy other real estate.

Many people think of a mortgage as a vehicle for buying a home and may not realize the extraordinary investment potential in buying mortgage notes. Investing in mortgage notes is a SIMPLE, secure way to diversify your portfolio and increase cash flow, offering reliable returns without the effort of other real estate investments.

Who should consider investing in mortgage notes? If you are looking to diversify your portfolio and generate passive income with real estate investments but do not want the hassle of flipping and renting, buying mortgage notes may be just what you are looking for.

Finding sellers and analyzing notes is often a large enough hurdle to send interested investors off in search of more familiar assets, such as hard real estate. Working with a mortgage note broker can remove that seemingly large hurdle by giving investors a knowledgeable partner who can help them navigate the process and manage their investment, payments, and even help mitigate risks.

One of the most compelling draws for mortgage note investors is that notes are not shaped by market fluctuation in the same way as other investment vehicles, nor do they require the ongoing maintenance and upkeep of other real estate asset classes.

Healthpeak Properties, Inc. is a fully integrated real estate investment trust (REIT) and S&P 500 company. Healthpeak owns and develops high-quality real estate in the three private-pay healthcare asset classes of Life Science, Medical Office and CCRCs. At Healthpeak, we pair our deep understanding of the healthcare real estate market with a strong vision for long-term growth.

A properly written and endorsed real estate lien note is a negotiable instrument for purposes of Texas Business & Commerce Code Section 3.201 et seq. Specific requirements of negotiability are listed in Section 3.104:

A real estate note that does not qualify as a negotiable instrument may still be valid and enforceable, and it may still be sold and assigned, but the usual common law rules relating to the assignment of contracts will apply. Caution is in order, however; the resale value of a note that is non-negotiable will likely be deeply discounted.

Clearly, there are many factors that need to be considered, both legal and in terms of risk assessment. Sensible purchasers of real estate notes (and the liens accompanying them) will ask an experienced attorney for assistance in evaluating the validity and enforceability of such documents before committing substantial funds toward their purchase. Accordingly, any executory contract for the purchase and sale of a real estate note should include an adequate due diligence or inspection period before a final closing. The purchase of any note that does not meet the minimum standards of this paragraph should be avoided.

As is the case with most contracts involving the sale of an item, it is advisable for the seller (the assignor, in this case) to insist on an alternative dispute resolution clause that requires a good-faith mediation before the filing of suit. A venue clause, a merger clause, a no-representations clause, and a no-reliance clause are all advisable inclusions, particularly if one is the assignor. Good drafting principles apply, so consult a real estate attorney.

Copyright 2019 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website,

A mortgage note is a legal instrument that typically outlines a promise to pay, or a loan, by one party to another. This instrument is usually secured by real estate and will contain information describing: loan amount, interest rate, payback period among other relevant items.

How is market value determined on a real estate receivable being sold to a note investor on the secondary mortgage market? This is a question that comes up many times daily in this industry. There are many primary and secondary variables that come into play when determining the value of a real estate receivable for sale.

The aggregate of notes, drafts, and bills upon which any person, copartnership, association, or corporation is liable as maker, acceptor, indorser, drawer, or guarantor, rediscounted for any member bank, shall at no time exceed the amount for which such person, copartnership, association, or corporation may lawfully become liable to a national banking association under the terms of section 5200 of the Revised Statutes, as amended: Provided, however, That nothing in this paragraph shall be construed to change the character or class of paper now eligible for rediscount by Federal reserve banks.

That in addition to the powers now vested by law in national banking associations organized under the laws of the United States any such association located and doing business in any place the population of which does not exceed five thousand inhabitants, as shown by the last preceding decennial census, may, under such rules and regulations as may be prescribed by the Comptroller of the Currency, act as the agent for any fire, life, or other insurance company authorized by the authorities of the State in which said bank is located to do business in said State, by soliciting and selling insurance and collecting premiums on policies issued by such company; and may receive for services so rendered such fees or commissions as may be agreed upon between the said association and the insurance company for which it may act as agent; and may also act as the broker or agent for others in making or procuring loans on real estate located within one hundred miles of the place in which said bank may be located, receiving for such services a reasonable fee or commission: Provided, however, That no such bank shall in any case guarantee either the principal or interest of any such loans or assume or guarantee the payment of any premium on insurance policies issued through its agency by its principal: And provided further, That the bank shall not guarantee the truth of any statement made by an assured in filing his application for insurance.

Alexandria, an S&P 500 company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world. As the pioneer of the life science real estate niche since its founding in 1994, Alexandria is the preeminent and longest-tenured owner, operator, and developer of collaborative life science, agtech and technology campuses in AAA innovation cluster locations, including Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland and Research Triangle.

If payment of the promissory note is guaranteed by property, called collateral, it is a secured promissory note. If the payor fails to pay, the noteholder can take the collateral as payment toward the debt. Collateral can be real estate secured by a mortgage, or personal property secured by a security agreement. If no collateral secures payment, the promissory note is called an unsecured promissory note.

The long and short of it is that you can get above-average returns on your money by investing in real estate. And since Fundrise offers REITs, you can earn this money without getting your hands dirty.

RealtyShares enables you to invest in either commercial or residential real estate projects. With as little as $5,000, you can invest in either real estate loans or equity. The platform enables you to invest in real estate across the US, and in a wide variety of different projects.

While you might think that owning your own home is mostly about providing shelter, think again. If properly managed, your own home can be the single best way to invest in real estate in a first investment.

With as little as $5,000, you can invest in either real estate loans or equity (there are a few investments you can participate in for $1,000). The platform enables you to invest in real estate across the US, and in a wide variety of different projects.

One reason RealtyShares is popular is because of how much work they do for you. When an investment opportunity pops up, they are going to look at the executives of the real estate company and the title reports and inspections. They are going to get as much information as possible about real estate.

On TV it always works. In real life, you have to know property values in the neighborhood to determine where to invest in real estate, and you must be able to buy a house well below its completed market value.

What could go wrong? Flipping houses is the most hands-on, and potentially risky way to invest in real estate. The two biggest issues are paying too much for the property upfront, or discovering that what you thought to be a minor repair is something much bigger.

For those who have exceptional handy skills, are knowledgeable about how to invest in real estate, and do not mind a challenge, fixing and flipping may be the best way for you to invest in real estate.

But if your house is located in the right area, and you have extra space, this is a pretty easy way to make extra money in real estate. Knowing where to invest in real estate is key to success in your real estate ventures. 041b061a72


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