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Real estate notes, also known as real estate receivables, are legally-binding documents used to assign buyer rights and record details of real estate transactions. These notes are created when property or land is sold and can be used as collateral for other investment purchases or sold for a lump sum of cash.
In essence, real estate notes document the promise of the Buyer to repay the Seller. They are frequently used along with mortgages to aide in the financing of real property, including carry-back financing. In this type of transaction, the seller finances either or a portion or the entire amount of the loan. Typically, the buyer pays the seller a down payment and the remaining balance is paid in installments.
Real estate notes are commonly used when an individual purchases stocks within a property. In this type of transaction a group of investors will partner with others to purchase a property and equally share in ownership. Each investor purchases a specific amount of stocks. The combined funds are placed into a real estate investment trust. REIT’s are companies that own significant amounts of land and operate profit-producing properties.
Notes can be sold for cash, either in part or whole. Although a relatively quick way to raise cash, doing so not without risk. When selling a partial note the individual will not receive full face value. This stems from fees associated with the sale. Additionally, the property owner may be required to invest in an appraisal of the property or pay a property title fee.
In cases where seller carry back financing is offered, the seller can sell the note to a bank or private investor. This type of financing is becoming increasingly popular for both residential and commercial real estate transactions.
Buying and selling real estate notes is a complex field that requires a thorough understanding of real estate, income tax laws, finance, sales and leasing, and property management. Although real estate investing can be an exceptionally lucrative venture, it does require an investment of time to become educated about the process. For those who take the time to learn the trade, it can significantly increase their bank balance and financial portfolio.
If you are interested in learning more about this type of real estate transaction the Internet is a great place to start. Additionally, you might want to visit your local library and checkout real estate or financial investing books and publications. Last, but not least, peruse the Classifieds section of your local newspaper to locate realtors and investors who offer investing courses and seminars.