Learning Centre
CRE Note Education
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The note, by itself, is simply a promise to pay and is not secured by collateral. In a financed real-estate transaction, the note is secured through a security instrument. This is either a mortgage or deed-of-trust.
Investing in notes is a wealth generating strategy that can provide consistent, long-term returns with predictable monthly payments to the investor.
There is some level of inherent risk involved in investing irrespective of the type of investment. Performing due diligence is the first step to mitigate risk which involves reviewing the documents of the lender, borrower and the collateral.
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A mortgage default can result from failure to fulfil a financial obligation or from a breach of mortgage covenants which renders a note non-performing. Default on note doesn’t necessarily raise a red flag.
Consider the objectives of lender and the borrowers. Hard times can fall on anybody, how you as a note holder can create a win-win outcomes for both the lender and the borrower. As a note buyer, one has more flexibility to work with the borrower than a large bank.