You may be asking yourself, “what is a note?” This is completely normal, and the answer more familiar than you may expect. A note is essentially a debt instrument, or in laymen’s terms: an I.O.U.

In this context, notes secured by real estate assets are mortgage notes – the paper instruments that entitle banks to collect  monthly mortgage payments from mortgagors, i.e., homeowners. Banks will sell these notes to investors at a discount in order to quickly bring in short-term cash for their coffers, foregoing their ability to collect on the interest. 

Notes are also generated when a real estate investor or other private seller decides to seller finance a property to a buyer. These private sellers may be motivated to liquidate their notes at a discount so that they can invest in their next enterprise sooner, rather than waiting years for the note to pay off. 

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