Valuation, Appraisal and Investing Tips for Real Estate Note Investing

Understanding Valuation and Appraisal of Real Estate Mortgage Notes

Savvy Investors Investigate Before Investing

As you manage your savings and investments, probably without realizing it, you are appraising and valuing investing opportunities, and their risks, and their future performance. You and millions of other amateur and professional investors are doing your own valuations; you are “swimming with the sharks.” Following are some basic appraisal and valuation tools that you should use to protect your savings from losses, and to improve your investment performance.

Shark Protection Tips For Investing in Real Estate Promissory Notes

Who is bringing you the deal? In many cases an investment opportunity is brought to you, and presented to you, by a stranger or by someone referred to you by an acquaintance. Your first job is to learn the investing facts about this person; learn exactly who he represents, how does he get paid, what is his professional background and training, does he have prior investing clients that you can interview as references for his capability.

If this person does not check out, don’t go any further with his investing opportunity.

What are the facts relating to the overall deal-the transaction?

Getting an overview understanding of the transaction, and then getting comfortable with its details is the first step needed to avoid having “lenders remorse”; that is, you don’t want to fund the loan now and then look back in three months and say to yourself “what was I thinking when I did it”!

In order to get that preliminary overview, get answers to these questions:

• What is the dollar amount of the loan?
• How long is the repayment term?
• What is the type and amount of the collateral security?
• Where is the transaction located?
• Where are the borrowers located?
• Why is the transaction happening?
• Do I understand the transaction?
• Am I comfortable with the thought of investing in this transaction?

What are the facts relating to the promissory note? Every promissory note is a custom made legal document. It is designed to accommodate and facilitate a specific business transaction. Be certain that you understand the transaction, and you are comfortable with the terms and conditions of the promissory note. Get answers to these questions:

• What is the interest rate?
• What is the length of the loan?
• What is the repayment schedule?
• Under what State’s laws will it be enforced?
• Does it comply with the laws of the State where it is to be enforced?
• Do I want to do business in that Sate?
• Do I have professional contacts (attorney, note broker, real estate broker) in that State?
• Is the note, and the collateral security document enforceable in court?

What are the facts relating to the collateral security? If you are buying or funding a promissory note secured by real estate learn:

Do I have a professionally done, current real estate appraisal report?
Do I have marketable, liquid collateral security?
Is the market value of the collateral security adequate to secure the note?
Is the borrower’s financial standing and creditworthiness adequate to do the repayment?
Do I have a Lender’s Title Insurance Policy?

Who will service the loan? Loan servicing services include collecting monthly payments, distributing payments to investors, mailing payment due notices to the borrower, maintaining adequate hazard insurance, keeping accurate books and records, and handling delinquencies and collection efforts.

Summing Up

You can swim with the sharks if you work with the right team. Work with experienced professionals-real estate brokers, loan brokers, attorneys and promissory note experts-who know the local market, its customs, and its laws. Don’t risk you savings by doing “on-the-job-training”.


“Advice is what we ask for when we already know the answer, but wish we didn’t.”

“Self-confidence is the first requisite to great undertakings.”

“Don’t follow any advice, no matter how good it seems, until you feel in your mind that it’s wise.”