If you’ve ever thought of investing in private notes, or maybe you’ve never even thought of the idea, it’s an excellent way to provide solid, double digit returns. But they’re not as exotic as they might sound. Private notes have been around since there have been buyers and sellers of real estate. In fact, Private Mortgage Notesprivate lending has a history long before there were any banks.

How? Because individuals borrowed from other individuals and promised to pay them back. If the borrower failed to pay the private lender back, the private lender had a right to foreclose on the property. It’s no different today. For the novice private note investor, here are a couple of things to consider.

First and perhaps foremost, private investors are a critical cog in the real estate wheel. Without them, distressed real estate would do nothing more than draw down the values of other properties in the area and decay even further as time goes by. Loans from traditional banks don’t always like to finance properties in need of repair or stabilization. They’ll be happy to finance a property once it has been rehabilitated but private lenders help stabilize communities and keep property values up while provide a safe, secure place for people to live.

Second, when investing in a private note, the developer will have all the numbers you need in order to make a decision. The property will be appraised both at an “as is” as well as “as completed” basis. The cost of the acquisition along with the cost of repairs are all laid out for the private investor. The investor then performs a good round of due diligence then decides whether or not to invest. Private notes are also typically for the short term, say anywhere from six months for a smaller project and up to two years for larger, multifamily properties. The notes are always in a first lien position secured by the property and many times a buyer is already lined up with a bank preapproval letter in hand.