Real Estate Paper

By Steve Gillman - 2007

Real estate paper, notes, or whatever this is called in your area - it is a fascinating business. In addition to this article, you may also want to see the following pages: Sell Real Estate Notes - Guidelines, and Sell Your Mortgage Note.

What Is Real Estate Paper?

"Real estate paper," is the term for loan documents related to real estate. These are also known as "notes," or "mortgage notes," but they are not the mortgage itself (that's a document that pledges the property as collateral if the terms of the "note" or "paper" aren't met.

Depending on where you get you statistics, between 5% and 10% of homes sold in the United States have some kind of seller financing. This could mean that the seller sold on a "land contract," a "contract for deed," or a mortgage, or even that the seller simple took back a small second mortgage to help get the buyer into the home. In all of these cases, the seller of a property is receiving payments from the buyer.

5% or 10% may not seem like a lot, but it means that there are millions of people out there holding real estate paper. The amount owed on this paper has been growing by several billion dollars per year recently. There may be as much as 300 billion in real estate paper out there, with a third of that in private residential mortgages.

Other sources include any loans or debts secured by real estate. A contractor, for example, may finance a home remodel job, and let the owner make payments for years, with this agreement secured by a mortgage on the home. A real estate agent might loan a buyer some money to close a deal, and create a note that is secured by the property.

Opportunities in Real Estate Paper

What does this mean to you? First, it means that if you are one of the millions that are getting payments from some property that you sold, you have a ready market for that note. You can cash out any time you want.

For investors, it is an opportunity to buy discounted notes for a great return. A man who is owed $50,000 on a home he sold might not want to collect payments for fifteen more years to get all his money. He may be willing to sell it to you today for $40,000. (A discount of 20% is not uncommon.)

What if you don't have enough cash of your own to invest in real estate paper? You can become a note broker. Several big note buyers will even train you. You bring the notes to them and make a profit without any investment of your own. In the case above, a buyer might pay $43,000 for the note, and after you negotiate a $40,000 price with the seller, you get to keep the $3,000.

For more on real estate paper and note brokering, subscribe to my course - the form is to the right.

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