Recently you have stumbled upon the wonderful world of Real estate notes. Now you want to know what is a real estate note? A real estate note is a promissory note that is evidence of a debt. The debt in the case of real estate was for the purchase of a property. The note will be the document used to outline the terms of repayment.
For this discussion, you need to know that a promissory note, a note, and a real estate note are used interchangeably. Accordingly, a real estate note is a more valuable debt because it is backed by a piece of real estate.
Where Do Notes Come From?
Once you understand what a note is now you can start to unpack where they come from. Whenever a property is bought if financing was used no matter if a bank loaned the money or the seller did, a note was created. In the event, a bank loaned the money they own the debt.
The bank that owns a debt can attempt to recover a debt if the borrower (Buyer) defaults. A default is when the borrower in a loan either misses a payment or stops paying altogether. Of course, Before the bank forecloses they will take prior measures. Once they do decide to foreclose it will force the sale of the asset in an effort to recover the amount loaned.
Earlier we mentioned that the money loaned to buy a property could come from a bank or the seller. A seller can be the bank. The way this happens is if the seller of the property offers to owner finance the property. For instance instead of the bank getting a monthly payment the seller does. In this case, the seller is the person who owns the debt. As before they can recover the debt if a default occurs.
What To Do With a Note?
Now we understand what is a real estate note and where they come from. You may be wondering what you can do with them. Many routes can be taken with a note however we will go over the basics. The entity that owns the debt is the one with the most leverage to do what they wish with a note.
The 2 most common routes note holders take are:
- Holding the note until it reaches maturity. Getting paid passive income for the length of the loan. (5-30 Years)
- Sell the note to an investor or broker like the Kodiak Bear Group.
Both of these options come with their own pros and cons.
The risk of holding a real estate note is that the borrower can default at any time. Foreclosures can be costly and at the end of the day you end up back with a property you sold. A property that won’t be in the same condition you sold it.
The pros of selling a note mean you don’t wait until maturity to get paid! This means you can free up capital and buy more properties. You get the opportunity to rinse and repeat the cash flow process.
Conclusion 
Real Estate Notes can be great tools to build wealth. The reason many investors love them is that they can be similar to rentals without having to manage them. Now that you know what they are you can begin to create your own notes with the properties you own. Once you have created the notes and are ready to do it all over again call us! We would be happy to get you an offer to buy your note. Contact us
We appreciate your reading and look forward to working with you!
Sincerely, The Kodiak Bear Group
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