Last week I was at an investor’s meeting and learned about “becoming the bank” through real estate notes, a promising alternative investment strategy. The guy giving his presentation has over 40 years experience doing this, and in this newsletter I am going to be simplifying what I learned down to a few easy-to-understand paragraphs.

So… what is a real estate note? 🤔💭

Basically a note is a fancy term for a mortgage, a legal agreement that says someone owes money on a property. This is extremely common when a property is purchased using “seller financing”, meaning the seller funds the loan so the buyer can purchase the property. In exchange, the buyer has to pay monthly installments with interest. The document that lays out this agreement is called the note.

Where do you come in?

By finding properties sold with seller financing, you have an opportunity to step in to create a win-win opportunity. You can purchase the note from the seller, at a discount, and either hold onto it to earn monthly interest, or you can sell it on the secondary market for even more gains.

Here is an example the speaker gave us: 👇👇

Let’s say there is duplex property that was seller financed and purchased for $200,000. The buyer put 20% down ($40,000, so the note is for $160,000), and the interest is 9% annual over 20 years with monthly payments totalling $2,000.

You step in and ask to purchase the note for $140,000. The seller agrees to this, because getting $140,000 right now beats getting $160,000 stretched out over 20 years. You now get to enjoy this $2,000 monthly income over the next 20 years.

Here’s where it can get even more juicy:

You take your newly acquired note, and you go to another investor and offer them the first 12 years of the 20 year note for $139,000. So you get all your money back except for $1,000. In 12 years, you now become entitled for the remaining 8 years of the $2,000 monthly payments… for only $1,000 out of your own pocket. If you do this a few times, you can see how this could really be impactful for your future.

What I like:

• Options. You can either keep the note for yourself, or sell it on the secondary market, giving you options to do what is best for you.

• Minimal cash in the deal: If you decide to sell the note, you only have $1,000 in the deal, minimizing risk.

• After you obtain the note, most of the work is done on your end, you don’t have to manage the property, just collect the mortgage payments!

What I don’t like:

• Waiting 12 years for your first payment: this is an obvious downside. The time value of money means $2,000 a month in 12 years will not be as much as $2,000 a month today would be worth.

• What happens if the property defaults on payments?: Let’s say 5 years into the deal the purchaser making mortgage payments defaults. If you own the note, you will now become owner of the property. How are you going to manage this?

• If you sold the note and the property defaults, who is entitled to ownership of the property? These need to be thought of ahead of time, and written out in the note agreement. Again, planning for these scenarios becomes paramount.

All-in-all, when structured correctly, real estate notes can generate strong returns, reduce operational headaches, and create flexible exit strategies that most investors never even consider. Like any investment, the upside comes with tradeoffs: time, risk, and the need for proper underwriting and legal structuring. But for investors willing to understand the mechanics and think a few steps ahead, notes can become a highly strategic tool for building long-term wealth.

The key takeaway here: you don’t have to actively invest in real estate—consider investing in the debt behind it.

I am not a CPA, and this is not legal or investing advice