What is a Real Estate Note?
harkins / July 20, 2016
An important part of real estate investment is the real estate note. This is an integral part of the loan process because it guarantees the lender will get his or her loan returned and will be protected if not.
A real estate note is also called a promissory note, a promise to pay back a loan. The note is basically a contract between a borrower and lender in which the borrower promises that they will repay a certain portion of the loan within a certain period of time. Often, specific terms will be included in the note such as an interest rate on the loan or any penalties for late payment.
The note is secured by a mortgage, a document attaching a lien against a property. Depending on what’s common of a particular state, it’s generally considered a deed of trust. The note protects the lender as if the note, or promise, isn’t paid off and no alternate arrangement has been made between the two parties, the lender will usually foreclose on the mortgage or deed of trust.
There are two types of notes; a secured note and an unsecured note. A secured note is backed by a property of some type. This can be real estate, an automobile, or some other property. An unsecured note is not backed by a property. Some examples of unsecured notes include student loans, medical debt, and credit card debt. Due to the fact that a real estate note is backed by the real estate property itself, a real estate note is considered a secured note.
If you’re going to invest in commercial real estate, you will likely need to secure a loan in order to purchase the property. But in order to secure the loan, you’ll need to sign a real estate note, or promissory note. If you are looking to invest in commercial real estate, come to Harkins Commercial Real Estate for guidance on the process.
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