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Frequently asked questions

A real estate note is a promissory note (promise to pay) wherein one party agrees to pay another party a certain amount, with certain conditions such as interest rate, length of time to pay, and monthly payment amounts. As an example, you signed a promissory note when you purchased your home or your car.

Notes can be either secured and unsecured, meaning that there is or is not collateral that can be taken to satisfy the note, if the terms of the note are not met. Real estate notes are secured by real property, e.g., single family houses, apartments, commercial property, etc. If the borrower doesn’t pay, the note holder can foreclose to obtain ownership of the real estate securing the debt.

Performing and non-performing simply means if the borrower is making payments or not. Generally, performing notes are either current, or less than 120 days delinquent. A word of caution – if the borrower is delinquent in making their payments, chances are good that the note will become a non-performing note. A non-performing note means payments are delinquent for 120 days or more.

First, a disclaimer. Like any investment, there are no guarantees on anything. Interest rates vary, sometimes subject to a state’s usury law. Generally, interest rates exceed savings account interest rates. We have seen interest rates from a low of 2% to exceeding 9%. Again, interest rates alone should not be the major enticement for investing in notes but rather seeking a consistent monthly should be the objective.

Foreclosure means you will get the real estate; you will own it. Caution – foreclosure entails hiring a local attorney and complying with the state foreclosure laws. Some states have very long foreclosure time frames. For example, New York and New Jersey can take two years or longer, which is why we suggest avoiding buying notes in these states. We have a listing of each state and the foreclosure time frames to help determine the states to invest in and the ones to avoid.

A better solution is to have the borrower voluntarily deed the property to you, which is possible in many cases.

We have what is called a Purchase and Sale Agreement where all the terms of the transaction are listed. The note itself is endorsed to the investor at closing. Additionally, an Assignment of Deed of Trust or Assignment of Mortgage is executed at the same time. All these documents are provided to you. The closing takes place at our real estate attorney’s office.

Yes. Full disclosure and transparency are key values of Oak Harbor Home Notes. The more you know and understand, the better. The file generally includes note information; property information; servicing information; payment history; copies of documents, and a valuation of the property.

A note servicing company collects the monthly payments from the borrower, takes care of all needed paperwork, and forwards the payments to you.

Yes, you need a servicing company to keep the records straight and keep you out of trouble. Using a servicing company is a best practice, and as mentioned, they collect the borrower’s monthly payments and apply them to the note in accordance with terms of the note. They ensure property tax and insurance premiums are paid, and will send year-ending statements to both you and the borrower. It’s never a good practice to handle the servicing of the note yourself.

We want you to be satisfied and happy with the transaction. However, any cancellation must be before the execution of the Purchase and Sale agreement as  commitments are based on it.

REO stands for real estate owned. This is property that a lender now owns due to foreclosure or another agreement to take the property back from the borrower. The lender wants to sell the property, as lenders are not in the business of owning real estate; their business is to lend money.

This is a very personal decision that involves many factors, such as risk tolerance, time you want to invest in holding the note, the amount of your funds, etc. Performing notes are generally simpler to deal with, i.e., you buy a note with a borrower who is currently paying, and has a good payment history. With a non-performing note, not only are payments not being made, the property may be vacant, or the borrower may still be in the property. They  may or may not be cooperative. There are a number of other factors that must be evaluated before deciding to purchase a non-performing note.

Owning the property makes you the landlord, and grants you all the headaches that come with being a landlord. Owning the note means you’re just the bank, not a landlord. Banks make money by lending it, not by owning real estate. Owning a note as the bank means only being concerned about timely payments.

There are three ways to learn about investing in notes: 1) Watch videos, including the ones on this web site; 2) read books; and 3) call me. I’m more than happy to discuss note investing, even if you don’t purchase from Oak Harbor Home Notes, LLC.

Any investment, whether stocks, bonds, certificates of deposit, and even putting your money under a mattress, has risks and must be evaluated to determine your tolerance for risk. Stocks and the stock market go down, interest rates fall, and a house fire can burn up the mattress along with your money. Like life, there are no guarantees with any investment.

Real estate notes have risk. Here are some of the things that can go wrong and how to fix them:

  • The borrower stops making payments due to some unforeseen circumstances. The fix: contact the borrower, and possibly adjust the note terms to keep the borrower paying, which is good, or foreclose on the property, which has its own issues.
  • The borrower moves without telling you. The fix: try to find the borrower to have them sign the property over to you. If unsuccessful, foreclose on the property.
  • The house burns down. The fix: the borrower is required to have insurance, which is verified by the loan servicing company. Insurance can be “force placed” on the property if there is no insurance, with the borrower paying the premiums. The property needs to be insured 100% of the time.
  • The real estate market slumps depressing housing values. The reality is that there is rarely anyone who can fix a slumping market. The solution is to buy notes with a loan-to-value ratio of at least 80%, giving a 20% cushion in case prices fall. As long as the borrower continues to make payments, the real estate slump should have no impact on the note.
  • What if the borrower refinances? The fix: none, as your note gets paid off, allowing you to re-invest the money in another note. You can’t prevent the borrower from refinancing.

Yes. Many private investors use their retirement accounts as a vehicle to boost their savings. Your retirement account must be placed with a company that allows note investments, as the note purchase transactions are more involved than simply purchasing stock over the internet. Call me for a list of these companies.

The very first thing is a discussion with you about your knowledge of real estate notes, your objectives, amount of funds you wish to invest, other savings and income, and your tolerance for risk. Notes should be a supplement to your other investments, not a replacement. Once you’re knowledgeable and comfortable about investing in a note, we will either offer some for your review or attempt to find one that meets your criteria. We understand that investing in a new type of investment can be scary and our goal is for you to have confidence in what you’re doing.

Of course! We recommend you consult with your own real estate attorney to review the documents. Our real estate attorney will handle the sale transaction, but do not hesitate to contact your real estate attorney.

Generally 14 to 30 days, depending on time needed to complete the due diligence, execute needed documents, and wire funds to closing.

Wire transfers is the safest and most expeditious method.

We work one of two ways:

  1. We will locate a note for you with your specifications, or,
  2. We will offer notes for sale.


If you desire to purchase a performing note with certain specifications, e.g., 6% interest rate for $100,000, we will contact our lenders to locate such a note. However, there can be a lengthy time locating such a note if none are  offered at the time. Additionally, you will be bidding on the note against other potential purchasers, so there is no guarantee you’ll secure it. Alternatively, you may simply wish to invest up to $100,000 in a performing note. The more general the specifications, the easier it will be to locate such a note.

We also offer notes for sale from time to time.

Our commission fee ranges from 1% to 3% of the loan amount with a minimum charge of $2,000.