What Are Notes Used For in Real Estate
Notes are a fantastic, flexible way to fund real estate deals of all shapes and sizes. Whenever ownership of real estate transfers from one entity to another, there is more often than not a note involved somewhere. Here are the five main reasons that real estate investors use notes
- Purchase and Refinance
- Hard Money Loans
- Private Lending
- Joint Ventures
- Owner Finance
- More Note Investing Articles
Mortgages to Purchase or Refinance
Just like home owners, investors can take out a long-term mortgage if they want to keep hold of a property. This could be at the point they buy the real estate, but more likely it will be to refinance the property after they bought it.
These are typically long-term notes of up to 30 years, and have relatively low interest rates (c0okmpared to hard money loans and private lending. In fact, a mortgage is one of the cheapest ways to borrow money, which is why investors will usually refinance with this type of note.
Hard Money Loans
Hard money lenders – so called because it is money that is otherwise hard to come by – loan money to real estate investors. Typically, hard money is used to acquire properties when an investor does not have all of the cash available themselves.
Hard money loans usually attract a high rate of interest, upfront fees (sometimes called ‘points’), and will be relatively short term. Sometimes as short as 3 to 12 months. This is one of the most expensive ways to raise money, but allows investors to act quickly when buying real estate.
Private notes are issued by a non-mainstream lender – usually just normal folk who have agreed to make a loan to a borrower. In most cases the private lender and the borrower will have a direct relationship. Private money is a great source of capital for real estate investors because it does not attract the same costs, fees and interest rates as hard money.
Real estate investors will use private money for much the same reasons as they would use hard money; to buy property, release equity or sometimes to fund rehab work. Specific terms can be negotiated much more easily with private money guys such as longer terms and better rates of interest.
Some joint venture (JV) real estate investments can be structured using a note. This is often the case with private money loans where one investor buys and rehabs a property, and another investor acts as the bank – providing a loan to investor no. 1.
Investors might use a note to provide a mortgage to the buyer of their property. This is known as seller financing or owner financing. It is an attractive option for the buyer, as they can often access homes that they would not normally be able to buy, and they do not need a traditional bank loan.
Seller financing works for the seller because they get to access more buyers, and they can still create liquidity by selling the note, or borrowing against it to release cash
I hope you found this article useful, or readable at least. If you would like to learn more about my private lending program for investors, just click here to watch the video and see live deals.
Some More Note Investing Articles
- Where to Buy Mortgage Notes – A Complete List of Verified Sources
- Note Investing 101 – Everything you Need to Know About Note Investing
- What is a Note and What Terms Should It Contain?
- Performing vs Non-Performing Notes – Which is the Better Investment?
- The Private Lender’s Guide to Assessing Credit Risk
- Understanding Lien Position and Priority
- How to Buy Mortgage Notes Online in 2021
- How to Assess Real Estate for note Investing and Private Lending
- Find Performing Notes for Sale in 2021
- Private Lending 101 – Everything you Need to Know About Private Money Lending
- Is Buying Mortgage Notes a Good Investment in 2021?
- Note Investing vs Rental Properties – Which is the Best Investment?
- Performing Notes – What Why and How to Buy
- Is Real Estate Note Investing Risky?
- Real Estate Notes vs REITs – Which is the Better Investment?
- The 3 Best Real Estate Investing Opportunities in 2021
- What is the Difference Between a Note and a Mortgage?