Note investing means buying existing real estate-secured loans (mortgage notes) rather than originating new ones. Performing notes pay yields similar to trust deed investing but with established payment history. Non-performing notes offer higher returns through workout, modification, or foreclosure — at higher risk.
Performing notes
Existing mortgage notes where the borrower is current on payments. Typical pricing: 80-95 cents on the dollar of unpaid principal balance, producing effective yields of 8-12% to the buyer. Lower-risk than non-performing but with limited upside.
Non-performing notes (NPN)
Notes where the borrower is delinquent. Typical pricing: 30-60 cents on the dollar depending on stage of delinquency, property condition, and equity position. Investor strategies: workout with borrower (modify terms, restructure), short-sale or deed-in-lieu, or foreclose and take property. Returns 15-30%+ on successful exits; meaningful loss potential on failures.
Sourcing notes
Bank-owned (REO) notes through commercial lenders divesting non-core assets. Note marketplaces (NotesDirect, Paperstac, FCI). Direct relationships with originating lenders. Each source has different note quality and pricing characteristics.
Due diligence on Chicago notes
Property condition (drive-by or BPO), current value, lien position verification (title search), borrower payment history, original loan documentation, and any pending litigation. Chicago-specific: Cook County recorder check for title issues, water bill check (water bills can become liens), and 311 complaint history for active code violations.
Note Investing FAQ
Trust deed investing originates new loans. Note investing buys existing loans. Mechanics are similar; sourcing and pricing are different.
Yields of 8-12% net of servicing costs, depending on purchase discount and remaining loan term.
Successful exits: 15-30%+ annualized. Failed exits: meaningful capital loss. NPN investing is high-skill, high-reward.
NotesDirect, Paperstac, FCI Exchange. Direct relationships with Chicago-area community banks. Watch for portfolio sales from non-bank lenders.
Not for direct note purchases. Yes for some note-fund offerings under Regulation D.
Yes — self-directed IRAs frequently hold notes. Same custodian setup as trust deed investing.
Educational content only. Private lending involves capital-at-risk and tax/legal complexity. Consult a licensed attorney and CPA before deploying capital.