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