Complete Guide to Note Investing

Note investing is a real estate investment strategy that’s great for beginners. It can be the perfect opportunity if you’re interested in investing in real estate, but you really don’t want to have to deal with the daily headaches of managing a property or buying and selling. If you’re looking for a real estate investment that offers passive income without all the hassles that come with owning real estate, you may want to learn more about real estate notes. Read on to find out if this investment opportunity is what you’ve been looking for. 


What is a Real Estate Note?

Real estate notes are just a basic “IOU” that is guaranteed or secured by property. Also commonly known as “mortgage notes,note investing is a way some investors capitalize on creating passive income. That is, income that continues to generate and compounds, even when you’re not directly and actively involved.  


What is Note Investing?

Note investing is simply when an investor purchases debt and the security instrument that’s attached to the debt. If you’re interested in investing in mortgage notes, you will end up becoming the lender. At that point, you would collect mortgage payments from the original borrower. Most times, investors purchasing notes do so at a significantly discounted rate. 


Performing vs Non-Performing Notes

There is a very simple difference between performing and non-performing notes. Performing notes exist when the borrower is current on their payments. Non-performing notes, by contrast, signal that the borrower is in default on their loan.


While it may seem counterintuitive to try and invest in a non-performing note, they actually can be a fairly opportunity-driven investment. Though their value at purchase is likely minimal or nonexistent, the potential to modify the note through reselling it or foreclosing on it can offer significant profits. That said, the process is complex and time consuming, so be prepared if you’re considering going this route. 


Benefits of Real Estate Note Investing

There are a number of benefits for investors who are toying with the idea of buying a real estate note. First and foremost, note investing can be a very lucrative investment when done right. 

The main benefits of real estate note investing can include:

  • Passive income
  • Lower expenses
  • Eliminating the need to pay real estate agents
  • Potential for a higher return on investment

Risks of Real Estate Note Investing

Of course, any investment opportunity comes with at least some risk. It’s important to be aware of the downsides to real estate note investing. This way, you can be prepared to evaluate if this style of investing really is right for you and your risk tolerance. 


Some disadvantages to investing in real estate notes can include:

  • Borrower may completely default on the loan
  • It can be difficult to measure potential profitability
  • If property goes to auction and sells for less than the note cost, investor would lose money
  • Not insured by FDIC

Connect Invest Short Note Investing

Note investing can be a lucrative opportunity and great real estate investment strategy, even for less-experienced investors. Understanding exactly what it is, the difference between the types and the benefits and disadvantages can help you decide if this is an investment opportunity you’d like to explore further.


Learn more about how Connect Invest short note investments are an excellent way to get started. Short terms, high-yield returns and low minimum requirements make it easier than ever to find out if this style of investing is something you should consider. Sign up with Connect Invest today. 

Back to articles