Why Invest in Real Estate Notes?

In the realm of alternative investing opportunities for accredited investors, note investing isn’t well understood, so with this overview we aim to shed light on the basics of what real estate note investing is and how it can make sense for certain investors.

We’ll start by explaining what a real estate note is and the rights associated with purchasing one, then we’ll explore performing and non-performing notes. As we further unpack the world of note investing, you’ll discover the unique benefits that set apart owning real estate notes from traditional property ownership. Finally, we’ll discuss purchasing existing notes or investing through funds aims to provide practical insights for both novice and seasoned investors alike.

Why Choose Mortgage Note Investing?

Mortgage note investing offers an attractive alternative for those seeking predictable yields without compromising too much on risk levels. When you invest in mortgage notes, you’re essentially stepping into the shoes of banks and lending institutions by purchasing debt secured by real estate property at discounted prices. This strategy can provide steady cash flow through borrowers’ monthly payments while also offering the additional risk-reducing benefit of what we call “phantom appreciation” if the value of the property that secures the note increases over time. Finally, we point out that mortgage notes can actually be more liquid than real estate itself.

Benefits of Mortgage Note Investing

  • Less volatility compared to the stock market
  • Investment is secured by real estate property
  • Opportunity for “phantom appreciation”
  • More liquid than real estate

Risks of Mortgage Note Investing

  • Default risk if borrowers fail to make payments
  • Foreclosure risk if the property value decreases
  • Compliance risk

Mortgage note investing may be a possible option for investors wishing to expand their portfolios and gain consistent yields. Nevertheless, it’s critical to take the necessary steps and collaborate with experienced professionals to reduce potential risks and optimize returns.

Understanding Mortgage Note Investing

For those unfamiliar with real estate investing, mortgage note investing is the buying and trading of a promissory note (the mortgage) created when a property is bought or refinanced. Essentially, when a house is bought or refinanced, a legal document (the mortgage) is generated. This note can then be sold and traded like any other asset.

What is a Real Estate Note?

A real estate note, also known as a mortgage note, represents an agreement between two parties where one party promises to repay borrowed money used to purchase property. It’s essentially an IOU that includes all the terms for repayment.

Rights Associated with Purchasing a Real Estate Note

  • Payment rights: As the owner of the note, you have the right to receive payments from the borrower according to agreed-upon terms.
  • Lien rights: If payments are not made as promised, owning this type of investment gives you legal claim against the property itself through foreclosure proceedings.

Note investing allows investors access to the real estate market without direct ownership over properties, making it quite unique in nature.

Types of Notes in Mortgage Investment

In the world of mortgage note investing, there are two main categories to consider: performing and non-performing notes. Each type comes with its own set of risks and potential returns.

Performing Notes

A performing note is a loan where the borrower makes regular payments as agreed upon in their contract. For investors, these types of notes provide steady income through interest payments over time.

Non-performing Notes

Non-performing notes, on the other hand, are loans where borrowers have stopped making payments. These may seem risky at first glance but can offer high rewards if managed properly. Investors often purchase these for less than their face value and work out new payment plans with borrowers or pursue foreclosure proceedings to recover their investment.

The choice between performing and non-performing notes depends largely on an investor’s risk tolerance, expertise in managing distressed assets, and overall investment strategy.

Advantages of Investing in Mortgage Notes

In the world of real estate investment, becoming ‘the bank’ can offer numerous advantages. One such advantage is avoiding landlord responsibilities while still earning from property investments. This unique position offers a host of benefits compared to other forms of real estate assets.

Becoming the Lien-Lord vs Landlord

As an investor in mortgage notes, you become what’s known as a lien-lord rather than a landlord. Unlike landlords who have to deal with tenant issues and maintenance costs, lien-lords earn regular interest payments without any direct involvement with the property itself. Learn more about liens here.

Benefits Specific to Real Estate Notes Investment

  • Risk Diversification: By investing across multiple notes, you can spread your risk and increase potential returns.
  • Cash Flow: Mortgage note investments provide consistent cash flow through monthly payments from borrowers.
  • Potential for Consistent Returns: With careful selection and management, mortgage note investments can yield attractive returns, even compared to traditional real estate investments.

Considering Real Estate Note Investing?

If you’re thinking about diving into the world of real estate notes investment, there are two main routes to consider. You can either buy existing notes or partner with fund managers for a more passive approach.

Purchasing Existing Notes: Steps Involved

Buying existing mortgage notes involves several steps. First, locate potential note sellers, which could be banks, hedge funds, or private individuals. Next, evaluate the note’s value and risk by conducting thorough due diligence. Once satisfied, negotiate terms and close the deal, then makes sure you use a reputable loan servicer to ensure compliance.

Investing Through Funds: Pros And Cons

An alternative route is investing through a fund manager like PPR Capital Management who handles all aspects of note investing on your behalf. This option offers advantages like diversification and professional management but also comes with its own set of risks such as lack of control over individual investments.

No matter which path you choose in this journey towards mortgage note investing, remember that due diligence is key before making any decisions. It’s always wise to consult professionals or seek advice from experienced investors in this field. Enquire and explore thoroughly.

Working with Fund Managers for Effective Returns

In the world of real estate investing, partnering with a fund manager can be a game-changer. Many high net worth individuals and professionals prefer this approach over going solo, and for good reasons.

Why Choose a Fund Manager?

Fund managers bring years of experience and expertise to the table. They have in-depth knowledge about market trends, legalities involved in note investments, and risk management strategies. This allows them to make informed decisions that maximize returns while minimizing risks.

Benefits of Partnering with Experts

  • Risk Diversification: By pooling your investment with others’, fund managers can invest in multiple notes across different locations, thereby spreading out the risk.
  • Leverage Expertise: Fund managers’ deep understanding of real estate markets enables them to identify profitable opportunities that may not be apparent to individual investors.
  • Hassle-Free Management: Investing through funds means you don’t have to worry about day-to-day operations or collection processes; all these are taken care of by the fund manager on your behalf.

In essence, working with a seasoned fund manager like PPR’s team takes much of the guesswork out of mortgage note investing while ensuring effective returns on your investment.

Partnering with a fund manager may be the most prudent decision for those seeking to invest in real estate notes.

FAQs in Relation to Note Fund Investing

What is note fund investing?

Note fund investing involves purchasing debt securities that represent a loan made by an investor to a borrower, providing a form of passive income through interest payments.

What is the average return on note investing?

The average return on note investments varies widely based on risk profile and asset class, but it typically ranges between 5% – 12% annually.

How risky is mortgage note investing?

Mortgage note investing carries risks similar to other forms of investment, such as default risk or market volatility, but diversification and due diligence can help mitigate these risks.


Note fund investing can be a lucrative strategy for high earners and wealthy individuals looking to diversify their portfolios.

There are different types of notes in mortgage investment, including performing, non-performing, and re-performing notes, each with its own advantages and risks.

Investing in mortgage notes can provide passive income, more consistent returns than traditional investments, and potential tax benefits.

If you’re interested in getting started with note fund investing, consider working with a fund manager who can help you navigate the complexities of the market and maximize your returns.

Remember to always do your due diligence and research credible sources before making any investment decisions.

Have a question about passive investing in a real estate fund? Schedule a no-obligation call with the Investor Relations team.