A real estate note (also often called a real estate receivable) is an official document that outlines an agreement between two parties that relates to property or land. In basic terms a mortgage deal is a real estate note as it outlines the commitments that the buyer of the property makes to the mortgage lender in order to borrow and pay back the money that they need.
Real estate notes can relate to all kinds of property and land transactions. So, for example, a note here can relate to the selling of a house from one party to another. Or, it could relate to a contract to buy land. The common bond that all real estate notes share is the ‘contract’ between the two parties that makes the sale.
These kinds of notes are really assets if you hold them and as such they can be bought and sold. There are many individuals out there in the sector who, for example, buy real estate notes. This process works by the buyer paying the note owner a lump sum payment to buy the note itself. They then own the note and the seller does not. Any future payments made under the note’s conditions will therefore pass to the new owner rather than the ancient one.
Selling real estate notes can be a excellent way of getting hold of immediate cash and the trading of these notes is common with many property specialists. So, for example, if you hold a note on a piece of land that you sold to your neighbor then he may have committed to pay you $20,000 over a period of years in regular monthly payments.
You may have a regular income from this note in this instance but that will not necessarily give you an immediate return on your sale of land. But, if you want to raise money then you could sell the note on to a third party. You would then get a lump sum and your neighbor’s obligations would then pass to the buyer of the note.
It is also common to sell on this kind of note if the person that has the obligation to make the payments to you defaults on their agreement. Here, you will get a payment towards the value of the note and the buyer will then take on responsibility for chasing the debt.
It is vital to remember that you won’t get the face value of the note that you hold in this situation. After all, the buyer of the note will want to make a profit so you will likely walk away with a percentage value of the note overall. This can still be useful if you need a large cash injection for some other reason immediately.
It is also vital to make sure that you meet any legal obligations when you sell a real estate note and that you look around to get different quotes. The prices paid for these kinds of notes can vary widely so you’ll get the best deal by shopping around as much as you can.