What Makes a Real Estate Note a “Good” Note?

What Makes a Real Estate Note a “Good” Note?

Whether you're holding a note after selling a property or looking to invest in one, it's crucial to understand what makes a note valuable—and what turns off buyers. Not every note is created equal, and knowing how to evaluate a note is key to protecting your investment or getting top dollar when you sell.

At BellOne Solutions, we help sellers and investors navigate the world of real estate notes every day. Here’s a deep dive into what defines a “good” note—from an investor’s point of view.

✅ 1. A Solid Payment History

One of the first things a note buyer looks at is the borrower’s payment history.

• Consistent on-time payments (especially over the last 6–12 months) make the note significantly more attractive.

• If the borrower has missed payments or there’s a history of late payments, the note becomes riskier—and less valuable.

Why it matters: A strong payment history reduces default risk and increases the note’s market value.

🧠 Tip: Even if your borrower is brand new, keeping tight records from the beginning will pay off down the road.

💰 2. Large Down Payment at Origination

The more the borrower puts down, the more “skin in the game” they have.

• Down payments of 10% or more are considered ideal.

• Notes with little to no money down are considered high-risk by most investors.

For example:A $150,000 home with a $20,000 down payment leaves a balance of $130,000. That’s about 87% Loan-to-Value—not bad, but a $30,000 down would lower it to 80% and make the note far more attractive.

🏡 3. Low Loan-to-Value (LTV) Ratio

The Loan-to-Value ratio is a key metric. It compares the current unpaid balance of the note to the market value of the property.

• Lower LTV = safer note.

• A note with an LTV below 70% is typically considered a “prime” note.

• If a borrower defaults, there’s enough equity in the property for the note holder to recover their investment through foreclosure.

📄 4. Strong Documentation & Legal Compliance

A well-documented note is essential. Without proper paperwork, buyers can’t verify the details—or enforce the contract. A "good" note includes:

• Promissory Note

• Land Contract / Deed of Trust / Mortgage Agreement

• Purchase Agreement

• Proof of Down Payment

• Amortization Schedule

• Payment history (bank statements or receipts)

• Insurance and taxes info

📚 At BellOne Solutions, we help sellers gather and organize these documents before listing their note.

🏠 5. Owner-Occupied vs. Investment Property

Notes secured by owner-occupied properties are usually seen as lower risk. That’s because:

• People are more likely to pay their mortgage if they live in the home.

• Investors may be more likely to walk away in tough times.

  
  

While investment property notes can still be sold, they’re typically discounted more heavily.

🔢 6. Reasonable Interest Rate

The interest rate on your note affects both buyer appeal and discount rate.

• Too low (e.g., under 5%) and buyers may not find the yield worthwhile.

• Too high (e.g., over 12%) can be a red flag—signaling predatory terms or high risk.

An interest rate between 6%–10% is typically ideal.This creates strong passive income for buyers without raising concerns.

📆 7. Seasoning: Time on the Books

“Seasoning” refers to how long the borrower has been making payments.

• Most buyers want at least 6 months of consistent payments.

• 12+ months of on-time payments? Even better—it shows reliability and increases the note’s value.

However, new notes (called “unseasoned”) can still be sold—just usually at a larger discount.

🔎 8. Performing vs. Non-Performing Notes

A “good” note is a performing note—meaning the borrower is making their payments on time.

• Non-performing notes (where the borrower is late or stopped paying) are harder to sell and usually go to specialized investors at steep discounts.

⚖️ 9. State Regulations and Foreclosure Laws

Where the property is located also affects note value:

• States with faster and easier foreclosure processes are often seen as less risky.

• States with long, complicated, or judicial foreclosure laws can drive down the value of a note due to added time and legal costs.

🎯 Final Thoughts: Build a “Buyer-Ready” Note

If you’re looking to sell your note, the more of these boxes you check, the higher the payout you’ll receive.And even if your note isn’t perfect, that doesn’t mean you’re out of options.

At BellOne Solutions, we specialize in helping note holders sell their notes for cash now—whether the note is brand new, partially seasoned, or somewhere in between. We offer:

✅ Free note evaluations✅ Access to a nationwide network of note buyers✅ Help gathering documents and getting your note “buyer-ready”✅ Fast closings and transparent offers

Got a note? Want to know what it’s worth? Let’s get you paid.

📞 Call BellOne Solutions or fill out our online form to get started today.