Note Investing Vs. Real Estate Investing

Real Estate Investing Vs. Note Investing

If you are looking to build your fortune, investing in real estate is a time-tested way to build wealth. For many millionaires, the hardest choice to make is what type of real estate investment to pick. Whether Real estate investing or investing in real estate notes both offer great options for returns. Choosing the investment that makes the most sense to your long-term goals is easy with the right investment.

While other investments follow the trends, investing in real estate is a  favorite for millionaires to build passive income. Real estate investing, and note investing offer various types, and ways to build an income.

While both opportunities offer ways to generate income, getting started and profiting can take time. Every investment carries risk, so having the method that best suits your risk profile is ideal.

If you want to start your real estate investment journey, this guide will make choosing your investment type easy. We break down the various types of Real estate investing and real estate notes so you can make the best investing decisions.

What Is Real Estate Investing

Real estate investing is a great choice for hands-on investors. Real estate investors are often house flippers, landlords, and take an active approach to their investments.

A real estate investor often will purchase, repair, and then either sell or rent an investment. These investors profit directly from the real estate property by renting or selling.

If you are a house flipper, your goal is to buy distressed or undervalued properties, make repairs, and profit from those repairs. Similar to a landlord, you can make improvements, add amenities and competitively price your rental to generate passive and long-term income.

You can invest in all types of real estate, but these often break down into three categories: Commercial, Residential, and Industrial.

3 Types Of Real Estate Types:

  • Commercial Real Estate: Commercial investments are often office buildings (where you rent office spaces to businesses, apartment complexes, and storage facilities.
  • Industrial Real Estate: These are often warehouses, and factories. These are high-risk investments and can be costly to maintain, but boast high-profit margins.
  • Residential Real Estate: Houses, Duplexes, and other housing buildings are listed as residential real estate. Residential is the most common real estate type for first-time investors.

Real estate investing is a great fit if you love to take on big projects, and reap the rewards of your hard work. As a real estate investor, you get full control of your investment.

As a real estate investor, having a plan and strategy for your investment is key to success.  That is why most real estate investors choose one of these popular methods for their investments.

Different Types of Real Estate Investing

Real estate investing has many factors for success. Some of the most important being the property, location, and the local market. These factors can make a large impact on the profitability of your first investment.

For many first-time investors, there are 2 common ways to begin investing in real estate. While each of these has additional pros and cons, many investors find these to be the easiest ways to get started in residential real estate investing.

Flipping: House flipping is one of the most popular ways to invest in real estate. House flippers focus on finding and fixing homes to sell for a profit. To be a profitable house flipper requires repairing a distressed property to maximize the after repair value of that home.

To be a profitable house flipper you will need to do the following: find a distressed property for a small purchase price, complete the right repairs to maximize the value of the property, and sell the property for a profit. House flippers focus on short-term investments, as the less time spent owning property the more they can profit, as this leads to fewer costs and maintenance over time.

Renting: Renting a property is another way to invest in real estate, and is perfect for those who are interested in a long-term investment. Rentals can vary in property types and can offer investors passive income.

The key to a profitable rental is zero vacancies. Finding the right tenants for your rental can be a huge factor in success, which some landlords do through an interview process and upgrading their rental to attract tenants.

Some Popular Rentals Are: 

  • Vacation Rentals: Location will play a large role in the success of a vacation rental. High trafficked areas are ideal for those that are
  • Long-Term Rentals: A standard rental agreement of about a year, this type of rental is a great way to generate a passive income that will pay for itself over time, as long as you have the right tenants.
  • Airbnb: while controversial this is a great way to have high trafficked rentals due to the popularity of Airbnb. These short-term rentals can be high earners for any landlord.

Real estate investing is great for those that enjoy getting their hands dirty, and aren’t afraid of risk. For those looking for a low-risk and low-maintenance investment, note investing might be perfect for you.

What Is Note Investing

Real estate notes investing is a great opportunity for low-risk and low-maintenance investments. Note Investors purchase deeds of trust from a lender to profit from interest accrued on the loan. Note investors profit from interest acquired from mortgage payments, making note investing one of the easiest ways to invest in real estate.

It may be harder for someone to begin investing in mortgage notes, as a large amount of capital is required to purchase the note. Additionally, good credit history, proof of funds, and a relationship with a lender are all required to begin investing.

Lenders are quick to respond to note investors, as selling notes frees more capital for them to use on other opportunities, and may offer to service (interest payments) to make the transaction easier.

Note buyers profit from purchasing the deeds of trust or mortgage notes as they will receive the interest from these loans, and can purchase them at a discount from the lenders. Note buyers can work with lenders who service their loans for them and receive monthly checks without having to check with the borrower.

While note investing does require large down payments upfront, they easily generate passive income for the investor with minimal oversight.

Different Types of Real Estate Notes

Note investors are very selective of their investments, as a high-risk note could lead to foreclosure and loss of your investment. To mitigate risks, it is important to know the different note types and their level of risk in real estate notes.

Note investors will be able to review the different loans, and property types available for purchase. These terms are used to identify the type of mortgages tied to properties. Generally, the loan types will fall into these categories:

How The Loan Is Secured: 

  • Secured Loans: Tangible assets are tied to the loan, such as the property, making these are lower risk notes. In the event of a foreclosure, the note holder would receive the property.
  • Unsecured Loans: These loans do not have a tangible asset tied to the property, making them a higher-risk loan in the event of a foreclosure.

Who Is Offering The Loan: 

  • Private Loans: Offered by private lenders such as hard money loans being used by house flippers to repair real estate properties.
  • Institutional Loans: These loans are offered by large financial institutions such as credit unions or banks, these loans can be for residential use (mortgages) or flip loans depending on the lender.

How the Loan is Repaid:

  • First Position Loans: This loan will get paid first and is usually a secured loan as well. These are the best loan positions for a note as it ensures you will get paid first.
  • Second Position Loans: A second-position note will only get paid once the first position is satisfied. This is a higher risk note as it does not guarantee payment.

Real estate notes can vary from type of mortgage and property. Like any investment, note investing isn’t without risk. Depending on the asset it may be higher risk than others, so choosing low-risk notes is ideal for a first-time note investor.

Real Estate Investing Vs. Note Investing

Now that we have covered the ins and outs of note investing and real estate investing, how do you choose the investment for you? Both real estate and note investing offer unique opportunities to invest and see returns, but ultimately the right investment boils down to your involvement.

Real estate investing requires a more hands-on approach. From choosing properties, making repairs, the investor will ultimately have to make decisions each step of the way. House flippers can expect to see a 10% return.

Note Investors, aside from choosing their property, do not have any further involvement.  These investors profit from their notes slowly over the course of time. The average return you can expect on a note investment can be anywhere from 4-6%.

Both real estate notes and real estate investing offer ways to build a passive and active income. Choosing the investment style that matches your interest and involvement style!


Real estate is a great opportunity for investors. Whether you prefer passive income or short-term payouts there are opportunities for you to get involved and start to build your fortune.

How are you going to start investing in real estate?




Prime Plus Mortgages

Prime Plus Mortgages

Prime Plus Mortgages is a licensed hard money lender. We specialize in hard money loans, bridge loans, fix and flip loans, home rehab loans, for developers, property flippers and buy-and-hold strategists. HML programs make private money available for small to medium scale projects.