Why invest in real estate notes?

Real estate notes provide diversification within the real estate market, allowing investors to spread their risk across different properties and borrowers.

Performing notes generate regular interest income, providing a steady and potentially predictable cash flow for investors.

Real estate notes are secured by real property, providing a tangible asset as collateral, which can offer a level of security to investors.

Investing in real estate notes can be relatively passive, especially when using servicing companies to handle borrower communications and payments.

Compared to direct real estate ownership, investing in notes often requires lower upfront capital, making it accessible to a broader range of investors.

Non-performing notes, when properly managed, can offer the potential for high returns through loan modifications, reperformances, or foreclosure and property resale.

Note investments can be less dependent on market fluctuations and economic conditions compared to direct real estate ownership.

Investors can choose from various types of notes, including performing notes, non-performing notes, first liens, junior liens, and more, allowing for tailored investment strategies.

Investors can adjust their risk tolerance by selecting notes with different characteristics, such as loan-to-value ratios or borrower credit profiles.

Investing in real estate notes provides exposure to the real estate market without the responsibilities of property management and maintenance.

Depending on the structure and location of the investment, there may be potential tax advantages, such as deductions for interest expenses and tax-deferred or tax-free growth within certain retirement accounts.

Real estate notes offer various exit strategies, including loan modifications, resale of the note, or foreclosure and property resale, providing flexibility in managing investments.