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Buy and sell real estate notes: how to start and how much you can earn

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Buying and selling real estate notes involves the trade of promissory notes secured by a mortgage or deed of trust. Investors may purchase these notes as a form of investment, often at a discount, seeking to profit from the interest or by eventually selling the notes at a higher price, while others may sell notes to liquidate assets or raise capital.

A mortgage note can be sold easily and quickly. A person or organization that collects loan payments has the option of selling a mortgage note for a one-time payment of cash rather than keeping the loan for a lengthy period of time. Depending on your need for funds, you can decide whether to sell all or simply a portion of your note. Below, we will tell you how to buy and sell real estate notes in general, as well as carefully analyze all of the possibilities and pricing aspects while delving further into the sale process. So let's not waste time and get to the point together!

What is a real estate note?

A financial document known as a mortgage note contains the terms of a loan used to buy real estate. In the past, obtaining a real estate loan required visiting a bank, credit union, or other financial organization. Depending on the specifics of the mortgage, they lend you money in exchange for a longer payment schedule that may last decades.

A seller of real estate is the owner of a private mortgage note. In such cases, the seller may be the sole owner of the property and may provide the buyer with a mortgage of their own.

The majority of mortgage notes last five years, during which the buyer often applies for a mortgage from a bank and pays the seller back with the funds from the mortgage loan. Some sellers, especially those who own commercial property, view this type of transaction as a long-term strategy because it allows them to depreciate the asset over time for tax benefits, receive a consistent monthly income, and have an asset to use as collateral in the event that things don't work out.

Private mortgage holders or buyers might think twice in the future about keeping a mortgage note. The option to sell their mortgage note always exists for a note holder who requires cash immediately.

Why do people sell real estate notes?

Private mortgage holders can sell their notes for a variety of reasons, but the majority include needing cash to meet urgent expenses.

You could use the money from the sale of your mortgage note for:

  • Getting a one-time cash payment,
  • Settling debt,
  • Creating an affordable retirement,
  • Putting the cash into non-traditional investing vehicles,
  • Settling medical debt,
  • Paying for college expenses,
  • Purchasing a home.

The proceeds from the sale of a mortgage note are not subject to any limitations on how they may be used. A note sale in this market can also go considerably more smoothly than a typical mortgage transaction.

Benefits of selling real estate notes according to collection

Although selling a note is not always the best course of action, it can be quite beneficial or profitable for many note holders. Actually, everything is straightforward: the payments made over the course of the note's life are exchanged for a one-time payment when the note is sold.

Why do people buy real estate notes?

Real estate notes can be excellent investments, particularly in light of the current low interest rates. Performing notes offer high monthly interest payments. They are well-liked by passive investors, who frequently hunt for a different place to put money from their retirement accounts.

Non-performing notes are typically pursued by investors seeking greater risk and the potential for greater gains. As I've already said, it's possible to purchase non-performing loans for a significant discount off the outstanding sum, and successful loan modifications and/or foreclosures can be quite lucrative.

Real estate notes are openly traded between investors in the United States, making it possible for anybody to purchase, sell, or own them. Owners of notes range from large financial institutions like insurance firms and university endowments to small mom-and-pop investors who are looking for a higher rate of return on their retirement assets.

With their self-directed retirement accounts, like a Solo 401k, Roth IRA, or something similar, the majority of investors in our private lending program purchase real estate notes. While some people are searching for greater income specifically, many people are just hoping to diversify their money away from the stock market into a larger choice of profitable alternative investments.

There will be some documentation involved in the purchase or sale of a real estate note. You will need an assignment and an endorsement, which are both crucial items.

Who buys real estate notes?

Investors are drawn to a number of characteristics that make mortgage notes practical and valuable sources of income. Mortgage notes are a fantastic alternative for anyone wishing to invest in real estate without the inconvenience of becoming a landlord. Entire companies buy mortgage notes and other comparable assets.

What types of notes can be sold?

Let's have a look at all the types of notes that can be sold – below, you'll find a detailed description of each one to get a full understanding.

1st and 2nd lien notes

Both senior forms of debt – first lien and second lien – have different standings concerning the collateral but are equally senior in terms of principal and interest payments. A lien is a claim made against the security offered to secure the loan. While the second lien has a lower priority claim, the first lien debt has the first claim on the collateral. Revolvers, another type of senior debt, may be secured by a separate asset pool or may pool collateral with first-lien debt.

Banks are frequently the first lien holders, but institutional lenders are also possible. Second-lien lenders, on the other hand, are nearly invariably institutional lenders. The terms between lenders are typically outlined in an intercreditor agreement, or ICA. It is also possible to divide unitranche facilities into first- and second-lien tranches.

Deed of Trust

A deed of trust is an agreement made at a property closing between a house buyer and a lender. It indicates that the mortgage lender will keep the legal title to the property until the loan is fully repaid and that the house buyer will repay the loan. Some states substitute deeds of trust for mortgages for securing real estate transactions.

A deed of trust involves the following three parties:

Trustor: The borrower.

Trustee: The person or organization that will legally hold the title.

Beneficiary: The lender.

Commercial notes

Commercial paper is a term used to describe a short-term, unsecured debt obligation that is issued by financial institutions and big businesses as a cheaper alternative to other forms of funding. Maturity of up to 270 days is typically associated with this money market instrument.

Instead of paying cash interest like a standard debt security, commercial paper is sold at a discount from its face value as compensation to the investor. The demand for commercial paper frequently develops owing to firms confronting a short-term requirement to fund expenses; in other words, the difference between the face value at maturity and the investor's discounted buying price is the investor's "profit."

How much can I earn by selling my real estate note?

You won't get your mortgage's exact principal back, but you might still get a sizable offer. Here are the criteria used to establish the value of your mortgage note so you can comprehend how much money you will receive for your payments:

  • Examining pay history (credit rating of the borrower),
  • Property evaluation,
  • Title in a clear first position,
  • Dates, sums, and interest rates for the upcoming installments,
  • Length of the mortgage,
  • Amount of the deposit recorded on the note.

The majority of this information can be found on your promissory note and trust deed.

Non-performing or performing mortgage note?

A non-performing note is one on which the borrower is not making the agreed-upon payments. Non-performing notes are those for which the borrower has fallen behind on payments or has a history of making late payments. On the contrary, notes that are performing are ones where the payments are made completely and on time. The selling price ranges from 75% to 100% of the current value for performing notes. Sub-performing notes can be sold for 50 to 80% of their current value. Hence, if you are planning to sell mortgage notes, it's essential to understand their current performance status.

Some investors, who are often found on note investing websites, are drawn in by the cheaper pricing of non-performing or sub-performing notes. The danger of someone who has missed payments in the past or hasn't made their mortgage payment in the last 15 to 60 days is also taken into account when determining how much to charge.

Notes that are already in default are considered non-performing notes. Investors find them appealing since it’s possible to purchase the property for 10% to 30% less than its market value. This may be a cost-effective method of purchasing an investment property, making mortgage note investing an attractive option. However, it does come with the bother of either foreclosing on the property or renegotiating the transaction, both of which are uncommon.

When it comes to selling residential mortgage notes, specifically for a multifamily property, you must conduct thorough research before making a decision. It's important to know the state of the property and the status of the renters. If only half the renters are paying their rent, it doesn't matter if it is nearly fully occupied. You shouldn't invest in a multi-family building that is in disrepair.

How to find a buyer

Finding a buyer who purchases the sort of mortgage note that you hold is the first step in choosing a buyer. Private mortgages come with affiliating notes, but the underwriting procedure is far less structured than it is for regular lenders. The amount you might anticipate receiving varies depending on the buyer. Before selling your real estate note, it would be prudent for you to weigh multiple offers.

Additionally, awareness of con artists and other unscrupulous transactions is also advised. And lastly, exercise due diligence. Start by searching for the business on the internet. If it has no website, that’s a warning sign.

Private mortgages come with affiliating notes, but the underwriting procedure is far less structured than it is for regular lenders. It's even possible that the mortgage note's represented loan isn't secured, which is typical with loans from friends or family. Finding a buyer under these circumstances may be considerably more challenging.

The amount you might anticipate receiving varies depending on the buyer. Before selling your real estate note, it would be prudent for you to weigh multiple offers. For your private mortgage note, Deed Street Capital promises to match or better any sincere written offer.

Awareness of con artists and other unscrupulous transactions is also advised. Many people attempt to profit from this scenario, since some private mortgage note sellers require fast cash. It's recommended to stay away from a firm if they want you to sign an agreement before they've made an offer.

And lastly, exercise due diligence. Start by searching for the business on the internet. If it has no website, that’s a warning sign. Additionally, you should avoid a company if the search results show a lot of complaints about it.

Which options do I have for selling real estate notes?

As for options to sell real estate notes, sellers have a variety of choices at their disposal: Full Purchase Buy-Out, Partial Purchase Option, Split Buy-Out, and Reverse Partial Buy-Out. Each option has its own advantages and considerations, and they offer flexibility depending on the seller's unique needs and financial goals. With careful consideration and research, sellers can successfully navigate the process of selling their mortgage notes.

Full Purchase Buy-Out

In a full purchase buy-out, the seller of a mortgage asset sells the entire note, gets the highest amount of cash up front (based on the asset's features), and is then completely free of any risk or servicing obligations. The seller can now pursue their financial objectives after this.

Partial Purchase Option

A partial purchase option entails purchasing a component of the note in relation to the payment stream or even the balloon payment (if any). Amerinote Xchange, for example, can buy payments for an asset that is being sold for 2, 3, or even 15 years. The remaining balance, principal, and interest revert to the original seller automatically and at our expense once we have received the agreed-upon number of installments. Although sellers would receive less cash up front, the interest accrued over the loan's duration would result in a considerably larger payout for them.

Split Buy-Out

A split buy-out is when the entire note is bought in two or more lump sum payments. The typical structure is a lump amount at the sale's closing followed by scheduled lump sum payments at future times until the sale is finished. The most frequent reason for this division of a note sale is owing to the borrower's and/or the asset's securing property market's poor performance. Additionally, sellers who want to reduce their exposure to tax liabilities in a certain fiscal year should consider this option.

Reverse Partial Buy-Out

A reverse partial buy-out is the purchase of a piece of a note, but the investor does not begin collecting until a later time. For instance, a seller might get a one-time payment in cash at the end of the sale and then keep getting payments on the asset for a predetermined period of time. This will allow the seller to profit from both the lump sum payment they previously got at the closure of the deal and the interest earned on the payments. The investor will subsequently begin receiving payments, usually up until maturity, at a mutually convenient future period. Occasionally, when the investor has finished their assigned portion of collecting the payments, the note will revert to the original seller and a future date.

Buying and selling real estate notes online

There are other choices if you prefer to purchase performing notes or perhaps lack the time, energy, or money to set about creating your own network of banks and other lenders from whom to purchase non-performing notes. In fact, there are many locations online where you can purchase real estate notes. These consist of:

  • Online Exchanges
  • Hedge Funds and Note Brokers
  • Crowdfunding Platforms
  • Hard Money Lenders
  • Private Lending Programs
  • Note Investment Funds

On note trading sites like, you will discover a variety of non-institutional note vendors advertising their notes for sale, including options on how to buy defaulted mortgage notes.There are all different kinds of notes for sale. Consider choosing us if you want to invest in a real estate note where you know the borrower intimately. The internet portal contains listings of performance notes for sale with Debexpert as the borrower. Also, with us, you won't need to waste time checking the seller by yourself – that's actually one of our main advantages.

Also, there are numerous note brokers and hedge firms that sell notes online. But be cautious. These "joker brokers" frequently purchase huge quantities of non-performing real estate notes from banks, keeping the best notes while selling the inferior notes to the general public.

How to get started

For buyers

You will be guided throughout the entire debt-selling process by your own manager. Below you'll see six steps on how to get started with selling real estate notes:

  1. In-depth Portfolio Analytics. The analytics team at Debexpert evaluates your debt portfolio and offers suggestions on how to sell it for the highest possible price.
  2. Portfolio Auction Setup. Debexpert will walk you through the auction setup procedure and offer guidance on the sort of auction to hold, how to divide a portfolio into pools, and when to sell a portfolio.
  3. Portfolio PreSale. Debexpert performs the presale and works with the best debt-buying firms. Debt buyers can keep an eye on everything online via a dashboard.
  4. Bids from Debt Buyers. Online bids for your portfolio will be accepted by hundreds of debt-buying organizations. Sellers and buyers can exchange messages on the Debexpert loan marketplace.
  5. Close the Deal Online. The contract is signed by the winning bidder at the auction and the seller. The buyer will be responsible for paying in full.
  6. Post Sale Service. On the Debexpert loan marketplace, files are exchanged and conversation logs between debt buyers and sellers are end-to-end encrypted.

For sellers

Here are the straightforward rules for selling a mortgage note:

  1. Assemble all the information regarding the mortgage note you wish to sell.
  2. Give the information to the purchasing body for a free estimate.
  3. Decide if the price offered is appropriate for you, then move forward with the transaction.
  4. The due diligence and underwriting will be handled by the purchasing business.
  5. The transaction will be funded by the buying party, and the note seller will get payment. That's it!

How to prepare a portfolio for sale

The inner workings of the deals you've closed and now possess, as well as your success/failure record, will be displayed in a well-maintained portfolio. Similar to a private money credibility packet, your portfolio can also include your purchasing philosophy and recommendations from other lenders you've worked with when you apply for financing. Investors should pay close attention to the following factors while creating a real estate portfolio from scratch: their objectives, numbers, asset allocation, and management.

How to sell real estate notes at the best price

  • Contracts containing both real estate and a building are more likely to be approved.
  • If you merely sell a section of your note, you might get more money.
  • Sell the upcoming payments to receive a better value.
  • The cash value of notes with shorter overall periods will be higher.
  • Clear terms in the deed and promissory note make it simpler to sell the notes.
  • When the market is dominated by low interest rates, the value of your mortgage will rise.
  • If a borrower has fallen behind on note payments, it will be challenging to sell the note.
  • Your discount rate will be less if a borrower has excellent credit.

Methods to Calculate Your Note Return

To evaluate an investment in notes, use the same methods for evaluating any other investment. Namely - ROI (Return on Investment), IRR (Internal Rate of Return), NPV (Net Present Value). Each of the techniques has its pros and cons.

ROI (Return on Investment) is a metric used to calculate an investor's benefits concerning his investment costs. We recommend using this metric to evaluate the results of your transaction, i.e., when you closed the sale of the note. And it is considered as - the money received minus expenses (servicing, due diligence, liquidation) divided by the purchase price of the note. 

NPV (Net Present Value) determines the purchase price of the note based on all future payments on a note given at the time of purchase using the discount rate. We do not use this method to evaluate investments because the discount rate is unique for each of the note buyers.

IRR (Internal Rate of Return) considers the rate at which the NPV of investment in a note is zero. This method is most common when evaluating any investment, including investment in notes. And the term Note Yield is most often used interchangeably.

How to Calculate the Note Yield, and What Does It Show?

The easiest way to calculate the Note Yield is to use the built-in function in Excel or Google tables - “RATE”. How to write this formula correctly. 

Note UPB is 61,000 with 130 monthly payments left: 

Yield Calculation Example

= RATE (130, -646, 45 000)*12 

So in this example, if you buy a $61,000 note for $45,000, your Note Yield will be 13%.

Congratulations! You can now make a qualitative assessment of your investment decisions in just a couple of clicks.

However, please notice that this mortgage note value calculator does not consider your servicing costs of this note investment. We will talk about this in our next article.

Buy and Sell Real Estate Notes: How to Start | Debexpert
Written by
Henry Arora
Head of Business Development

Experienced Manager with a demonstrated history of working in the Fintech/Customer services/Debt Collections industry. Skilled in Management, Debt Collections Sales, Leadership, Team Management, and Public Speaking. Strong operations professional graduated from Madhurai Kamraj University.

  • Fintech/Customer services Expert
  • Public Speaking
  • Debt collection Expert



Is Note Investing Profitable?

Yes, buying notes can be highly beneficial. To achieve consistent profits, though, you must do your research and comprehend any associated dangers, just as with any other type of investing. There is work required even if you don't have to devote time and effort to keep up a property.‍

What Are The Risks Of Buying Real Estate Notes?

Investing in real estate notes is not without danger. These dangers include the potential for the homeowner to stop making loan payments, which could result in financial loss for the investor in the note. The investor can suffer financial loss if the property is put up for auction and sells for less than they paid for the note.‍

What Happens If A Borrower Defaults?

When you don't make your loan payments, your account is sent to a collection agency, which makes an effort to get your unpaid balance back. Any payment default may lower your credit score, make it more difficult for you to borrow money in the future, incur fees, and may even result in the seizure of your personal belongings.‍

How Long Does The Whole Procedure For Buying And Selling A Real Estate Note Take?

In reality, it usually takes between 30 and 60 days for a real estate transaction to conclude, with an average of 47 days. Every county, state, and the lender has its own processes and deadlines. Using Debexpert platform this process takes 5-6 days.‍

What debt are we selling

We specialize in car, real estate, consumer and credit cards loans. We can sell any kind of debt.

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