Mastering Real Estate and Mortgage Note Investing

January 2, 20247 min read
Mastering Real Estate and Mortgage Note Investing
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • Investing in real estate notes offers portfolio diversification, asset-backed security, and the chance for passive income through interest or selling for a profit.
  • Real estate notes come in various forms, like first and second lien notes, commercial notes, and mortgage notes. Investors can choose between performing notes, which provide steady income, and non-performing notes, which can be bought at a discount but carry higher risk and potential for significant returns.
  • The primary risk in mortgage note investing is default, leading to potentially complicated and costly foreclosure processes.

Real estate investors who seek to diversify their investment portfolio would do well to understand mortgage note investing, including the types of mortgage notes and their benefits and risks.

To help, here is all about mastering real estate and mortgage note investing for new and seasoned investors.

What are Real Estate Notes?

Real estate notes are basically legal documents that are signed when closing on mortgages and establish properties as loan collateral. They are contracts between lenders and borrowers.

These mortgage notes contain loan details such as interest, monthly payments, and penalties for late or missed payments. They are held by the mortgage provider; borrowers get a copy at closing.

Real estate notes generally have two parts:

  • Promissory note. This document represents the borrower’s agreement regarding loan repayment. Details include the loan amount, interest rate, payment due dates, and loan terms.
  • The mortgage portion. This document affirms the lender’s right to seize the property if the borrower breaches loan terms.

Investors may buy, often at a discount, the promissory portion of notes as a form of investment. The goal is to profit from the interest or by ultimately selling the note at a greater price. 

The note may be sold wholly or in part, commonly to other investors. Anyone may buy, sell, or own real estate notes.

Real estate notes are especially popular among passive investors who often look for different places to put retirement account funds.

Benefits of Note Investing 

There are advantages to investing in real estate notes, including:

  • Low interest rates 
  • Potentially high monthly interest payments 
  • Portfolio diversification
  • Asset-backed investment 
  • Passive income
  • Property management not required 
  • Liquidity options
  • Compounding-boosted returns 
  • Limited liability since the investor is no landlord.
  • Anonymity 

Why Sell Real Estate Notes?

Real estate notes are commonly sold to raise capital or liquidate assets. Often, funds are used to pay debts, to support retirement, or to pay college expenses. They are also often used for nontraditional investing vehicles.

Say a girl has graduated from high school and is ready to attend college. This scenario is expensive and time sensitive. If her parents have not saved sufficiently for such a milestone, they can sell a mortgage note to quickly get a substantial amount of needed cash.

Buyers in the Note Market 

Typical profiles of those who buy in the note market include:

Passive investors. Such investors often look for other places in which to place retirement-account money.

Risk takers. These investors seek greater risk and prospects for greater returns through non-performing notes. 

Creative investors. The investor must use a bit of ingenuity to find good notes to purchase.

Those seeking portfolio diversification. Purchasing private notes can be a way to diversify investment holdings and mitigate risk. It also may improve cash flow.

Exploring Types of Notes

There are various kinds of note types, including:

First lien notes. With this type, the note holder gets to retrieve the property if the debtor fails to make required payments.

Second lien notes. Often issued by lenders, second lien notes can be obtained by borrowers using their property as collateral. If there is a default, and subsequent bankruptcy or asset liquidation, second-lien debt is paid after the first lien holder.

Commercial notes. These are unsecured forms of promissory notes that pay a fixed interest rate. Corporations or banks typically issue them to cover short-term obligations or receivables.

Mortgage notes. Essentially, these are promissory notes that are secured by specified mortgage loans. They are a documented promise to repay a certain amount of money plus interest. The note also specifies the interest rate time length for promise fulfillment.

Mortgage Notes Unpacked

Generally, investing in real estate notes means buying an existing mortgage. When an investor buys a mortgage note, they become the lender, with full lender rights. While the investor does not own the real estate, they can seize the property if the borrower fails to pay.

It is important here to understand performing vs. non-performing notes. Performing notes are mortgage loans on which the borrower is current — they are paying on time. Buying performing notes enables investment in real estate without having to buy, own, or manage properties.

If there has been no payment on a debt for at least 90 days, the mortgage is considered “non-performing.” Non-performing loans can be bought at deep discount and can be quite lucrative with loan modifications or foreclosures.

Take a company that purchases non-performing mortgage notes in bulk, typically at discount. Such notes, once purchased, are placed with a team of licensed loan servicers.

These servicers try to get the borrower on a new payment plan. Failing that, the note owner can use the property to exit. In other words, they can receive the deed in lieu of foreclosure or via real estate-owned sale.

Note Durations: Short vs. Long Term

Usually, short-term notes are debts a company must clear within a year. By contrast, a long-term note is a promissory note usually representing a bank loan. Payments here are due after one year.

Understanding the Risks 

The biggest risk with investing in mortgage notes is the prospect for default. If the property’s borrower does not make payments, the investor will not get their expected returns.

In that case, the investor may have to foreclose on the property to get their investment back. Such processes are potentially lengthy and costly, which is why non-performing notes are frequently available at a marked discount.

There is also a risk of fraud, as some dishonest individuals may seek to sell fake notes to investors. To avoid being victimized, avoid the swarms of so-called note brokers who want investors to buy certain notes. Usually, these are notes they have discarded and marked up.

Lack of due diligence is an additional risk. Investors should research the property as well as the borrower, and closely examine loan terms.

Further, interest rate changes can also impact real estate notes. Rising rates could lower the note’s value, resulting in smaller returns. 

It is also important to work with experienced and reputable investment firms or brokers to avoid potentially large capital losses up front.

Real Estate and Alternative Investments

One can go through Yieldstreet to invest in real estate, which remains a popular way to produce income and grow wealth. But unless investors go through Yieldstreet, success does generally require some degree of market know-how.

Yieldstreet is the leading alternative investment platform, on which nearly $4 billion has been invested to date. It offers private-market opportunities, which are less volatile due to their low correlation to a constantly fluctuating stock market.

Such real estate opportunities include real estate equity for IRA investors. Further, Yieldstreet has closed more than $900 million in commercial real estate transactions across over 100 deals.

Investing in real estate also serves another very important purpose: portfolio diversification. Creating a modern portfolio of varying asset types and anticipated returns can reduce overall portfolio risk. It can also improve returns. In fact, diversification is a fundamental pillar of long-term investing success.

Invest in Real Estate

Unlock the potential of private real estate markets.

Alternative Investments and Portfolio Diversification 

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.


Despite potential drawbacks, mortgage notes are often attractive to real estate investors because they can provide secondary income and high returns.They provide a way to invest in real estate without having to become a landlord and serve the crucial purpose of risk-mitigating portfolio diversification. As with all investing, informed decision making is key.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure