Think Only The Wealthy Can Purchase Notes? Think Again.

When I first learned about purchasing notes it was a wild several weeks.

I learned how to use a financial calculator, which in itself would forever change the way I looked at money. It was an easy decision to decide which side of the cash register I wanted to be on.

Can Only The Wealthy Purchase NotesSecondly, I learned about ‘flipping’ notes on to private investors and funders – people with money to purchase deals. In exchange, I would receive a handsome referral fee – costing me relatively nothing out of pocket.

Lastly, I learned although you could earn great money flipping notes, you could get wealthy owning notes.

The only problem with the last one was that I really didn’t have a lot of money at that time. I wouldn’t say I was living month-to-month but I certainly didn’t have $100k+ to start investing in notes for myself.

Enter small balance notes.


There is a false perception to outsiders that you need hundreds of thousands of dollars to start building your own investment portfolio – matter of fact, nothing could be further from the truth.

With nearly 6% of all real estate notes involving some kind of owner carry-back financing you can be sure there are notes of all sizes (and fitting lots of budgets).

Take land notes for example.

These are notes where the name fits the collateral. They are notes secured by land.

It could be residential land, commercial land, raw land, any type of land. Typically they are residential lots but if you see a chunk of land, there could be a seller carry-back note behind it.

In 2018 there were 12,176 +/- land notes created using seller financing for a total of $7.37 Billion in debt.

That is just ONE year.

Those land deals range in size from the smallest parcel to the largest pieces of commercial property. But, since we are talking about small deals let’s look at what that can do for someone just starting out.

Small Balance Land Note Purchase Example

Stuart, FL – Residential Lot (no house on it).

  • Sale Price: $15,000
  • Down Pymt: $4,000
  • Note Amount:  $11,000
  • Interest Rate: 10%
  • Payment Amount: $145.37
  • Term: 120 months
  • Payments Made: 22
  • Payments Remaining: 98
  • Current Balance: $9,709.27
  • Purchase Price: $7,500 (50% ITV or Investment To Value)
  • Investment Yield: 17.74%

I don’t want to confuse ‘yield’ with dollars but I do want to illustrate a point.

If the note pays each month (doesn’t pay off early) your $7,500 investment will grow to $14,246 by the time the note is paid off. You can now buy a bigger note or TWO notes of this smaller size.

Not only is investing in small balance notes something to consider, they come with four major benefits.

  1. Minimize any risk by spreading your money into more deals
  2. Higher yields
  3. Lower ITVs
  4. Less Competition

You can purchase these deals using a self-directed IRA where the payments go into the account and any tax (if applicable) is delayed to sometime in the future.

Second position liens?

Another category of small notes is what is called ‘second position’ notes or ‘seconds.’

Seconds position notes are oftentimes behind a larger ‘first’ mortgage. Their priority is exactly as it sound, in the event of a default and the property goes to foreclosure, the first person to get paid is the person holding the first position note. The ‘second’ person is second, and so on.

The problem is that if it gets that far it is not uncommon for the second not to get anything.

Personally I prefer land notes.

At least if things go bad I can take back the land and resell it without protecting against a senior lien.

I don’t want to deter anyone from doing second position notes – just not where I would recommend starting out.

Seconds are definitely an investors market. Investors can receive great returns once you know how to underwrite those types of deals.

One more thing… Partials

There is another ace-in-the-hole when it comes to wanting to invest smaller amounts of money…

Partial Note Purchases.

You don’t need to purchase the entire note to do some sort of deal. Oftentimes the seller doesn’t need to sell the whole note…just enough to take care of a particular need or want.

For example, the note seller may still be due 240 payments. An investor could offer to purchase the next 60 payments – then the note reverts back to the note seller – OR – they sell you MORE payments!

When it comes to getting started, don’t focus on all or nothing.

What you DO want to focus on is losing any perceived notion that you can’t buy a deal because you don’t have enough money (or access to money).

Many people when starting out in the note business flip some deals for both cash and experience (i.e.: Learn on someone else’s time). But, after a while, those flipping fees can be used to purchase your own notes…even if you start out small.


  1. Mr. Rewey,
    I have used creative financing for almost 30 years. I believe in the concept and I think that what my mentor taught me about private notes is correct. A private note holder is “investing in debt”. My business was showing people how to sell or buy real estate using creative methods including “private mortgages”.

    Although, I have inactive for some time, I would like to know more about “brokering notes”. More to the point, I am interested in referring for a commission. Is that something you can help me explore?
    I am located in North Carolina…800-793-6861.
    Bob Sivori

  2. Scott Nichols says

    would be very interested in hearing more on the land note investing.

  3. Ivan Terrero says

    Never knew this….thanks

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