Introduction to Investing in Real Estate Notes – Part I
This week, we will be looking at investing in Real Estate Notes – a growing part of real estate investing. First, though, you need to know what a note is:
When a seller allows a buyer to make payments over time for the purchase of property (instead of going through a bank), it is known as owner financing.
You might also have heard it called seller financing, owner carry back, private mortgage note, all inclusive trust deed, land contract, or an installment sale.
In a nutshell, the seller agrees to “be the bank.” This private financing by the seller takes the place of a traditional bank loan. The buyer receives the house while the seller receives the down payment and an IOU (or note) for the balance.
Why would a seller accept payments over time from a buyer?
A seller might be looking to attract buyers or sell a property fast in a slow market.
It can also be the creative solution when the buyer or the property fails to qualify for traditional bank financing.
For some savvy sellers it is a strategy to generate long-term interest income and maximize the selling price by offering easy terms.
The seller now holds a note and is entitled to a future payment stream or cash flow. But creating the note is just the beginning. There is also a lucrative secondary market for the purchase of privately held debt.
Part II will look at how real estate investors can make money working with these types of investments. This is all part of a special report on Real Estate Notes put together for investors by REIF and Tracy Z Rewey – a seasoned note investors here in Florida.