So what is a note anyways? A note (also known as a mortgage note, real estate lien note, or borrowers note) is a promise to make payments and eventually pay off a mortgage on your home. All of us that have a mortgage on our primary residence also have a note attached to it. A common situation when buying a home is to work with a certain lender when filling out paperwork and applying for your mortgage, getting approved, but then having that lender almost immediately sell the note to another bank or financial institution. The new bank or institution then does the actual collecting of your payments for the term.
The good news for those of us that aren’t a bank (most of my readers I assume!) is that we can buy these notes too. They serve as an alternative type of real estate investment, but you avoid many of the hassles of actually owning a property. A slogan I have heard repeated several times in the note industry is “no tenants, no toilets”. You won’t get woken up at 4AM with plumbing issues. If everything goes as planned, you’ll just passively receive a direct deposit every month for each of your notes. Even if things don’t go as planned, your note is secured by the property itself.
More helpful definitions:
- Note Servicing
- Self Directed IRA