What are Private Money Notes?

Private money notes, which are legal instruments that delineate the conditions of a loan arrangement between a lender and a borrower, are alternatively referred to as promissory notes or private mortgage notes. They are employed in private lending transactions, in which people or organizations give money to other people. These notes include information about the loan amount, interest rate, payback plan, and any assets or collateral used to secure the loan.

Private money notes can be issued for a number of purposes, including personal loans, corporate funding, and real estate transactions. They differ from conventional bank loans in that private parties, as opposed to financial institutions that lend the money themselves. Compared to traditional bank loans, these notes frequently offer greater flexibility in terms of terms and conditions and can be tailored to meet the unique needs of the parties involved.

These private mortgage notes are occasionally bought and sold by investors as investments, either to diversify their investment portfolios or to provide a consistent income stream in the form of interest payments.
Are notes made with private funds a wise investment?

If you would like to talk more about current Note opportunities or have additional questions, do get in contact with us. We appreciate your time.

Are Private Money Notes a good Investment?

For some investors, purchasing private money notes can be a wise choice, but as with any investment, there are dangers and rewards associated with it. The following elements should be considered when determining if private money notes are a wise investment:

1. Interest Income:
By paying interest, private money notes can offer a consistent source of income. Investors may receive regular payments, frequently at greater interest rates than those offered by more conventional assets like bonds or savings accounts, depending on the terms of the note.

2. Collateral and Risk:
Evaluate the note’s collateral. The danger of the loan may be reduced if it is secured by a valuable asset, such as real estate. Nonetheless, default remains a possibility, as the collateral’s value might not cover the loan balance in the event of default.

3. Exercise Due Diligence:
Carefully consider the borrower’s creditworthiness and the note’s terms. Assessing risk requires having a thorough understanding of the borrower’s financial status, payment history, and the property used to secure the loan.

4. Illiquidity:
Compared to stocks or bonds, private money notes are more
difficult to liquidate. It may take some time and may not bring the desired price to sell these notes on the secondary market.

5. Legal and Regulatory Considerations:
Make sure that loans and note investments are done in accordance with local laws and regulations. Legal factors might differ significantly amongst jurisdictions.

6. Diversification:
Think of these assets as components of a portfolio that is diverse. By distributing risk among several asset classes, diversification can assist.

Private money notes’ suitability as an investment ultimately comes down to a person’s risk tolerance, financial objectives, and the note’s particular terms and conditions. To determine whether these assets fit with your entire investing strategy and risk tolerance, it is advisable to speak with a financial advisor or other investment specialist.

If you would like to talk more about current Note opportunities or have additional questions, do get in contact with us. We appreciate your time.

Cons of Owning Notes in Real Estate

Of course, there are risks associated with every investment, and before making a choice, you should be aware of any possible disadvantages associated with purchasing real estate notes. Among them are:

1. Potential for defaults:
Loans are prone to default and foreclosure by definition. You can lose all you invested if the borrower stops making payments or otherwise defaults on the loan. (ask us about our contingency plan)

2. Extended dedication:
Usually, you have to commit your money for three to five years when you buy a real estate note. If you require access to your funds before that period, this could be an issue. (ask us about our contingency plan)

3. Interest Rate risk:
Interest rate risk is an additional risk to consider. This happens when you invest in a real estate note with a set interest rate and then market interest rates climb. Your investment will lose value if this does occur. (ask us about our contingency plan)

4. Illiquidity:
Lastly, it’s critical to realize that real estate notes are not particularly liquid financial instruments. This implies that selling your investment before it matures may be challenging. (ask us about our contingency plan)

Pros of Owning Notes in Real Estate

Purchasing real estate notes has various advantages, such as:

1. The capacity to bring in passive income Buying a real estate note allows you to make money without putting forth a lot of effort. Any cash flow that comes in after the original investment is made is passive, giving you more time to explore other projects.

2. Possibility of large profits In essence, you are lending the property owner money as a note buyer. You receive interest from the homeowner in exchange for this loan. Generally speaking, you get more interest than you would from a conventional savings account or certificate of deposit.

3. Protection of a material possession In contrast to market-driven assets like stocks and bonds, real estate is a tangible asset with perpetual worth. Because of this, investing in real estate notes is comparatively safe.

4. No headaches with management Investing in real estate notes relieves you of responsibilities related to upkeep, repairs, and tenant disputes.

5. Possibility of lending a helping hand Purchasing real estate notes allows you to help those in need of funding. This not only enables you to assist others in realizing their dream of owning a home, but it also lets you take advantage of tax benefits for your charitable contributions.

Opportunity to become the Bank

For long-term stock market investments, the majority of investors would consider an average annual rate of return of 9% or above to be a decent ROI. However, would your Stock, Bond or other Investments be Secured by Real Estate?

An Example of a Note for Sale

Loan Position: 2nd TD
Amount of Loan: $58,000
Term: 3-years
Rate: 13.00%
Payment: $628.33 (interest only).
1st amount: $206,000
Estimated value: $440,000
CLTV: 60%
PPP: 6-Month Prepay Penalty Period
Mid-Credit Score: 618
City/Zip: Beaumont, CA 92223
Remarks: 1,507 square feet, three bedrooms, two bathrooms, modern SFR constructed on a 5,600 square feet land. The borrower is buying a rental property with the money.

If you would like to talk more about current Note opportunities or have additional questions, do get in contact with us. We appreciate your time.