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REAL ESTATE NOTES INVESTMENTS: Investing in Real Estate Notes
When a borrower is current on all loan payments secured against a piece of property, the note is considered a performing note. Lenders will typically sell these notes at a slight discount to investors to increase their cash flow. These notes are generally secured against a low loan-to-value property and provide solid, conservative returns. If the same borrower were to stop making payments, the note becomes non-performing. The lender may chose to foreclose on the property to get their capital back or sell the note to investors at a substantial discount and write off the rest as a loss. These notes carry a much higher risk, but offer equally high returns. Like every investment, what makes the most sense for you depends on what you're trying to accomplish, how long you have to accomplish it and your own risk tolerance. We love notes as a retirement account investment. Notes have a wide range of entry points making them accessible to a broad range of investors. They also provide multiple risk/reward scenarios making them appealing no matter what your level of risk may be. And since you are buying an existing loan, these are all cash transactions. They require a lot of due-diligence, but the actual purchase of the investment happens rather quickly.
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