As developers seek out their next rehabilitation project, most often the properties they find are true diamonds-in-the-rough. So rough in fact that no traditional lender would issue financing, 

real estate investing

regardless how rosy the long term plan appears. Successful real estate investors know that and finance the initial phase of their projects with private funding. Once the project is stabilized, the property can then be financed and sold to the highest bidder while paying off the private notes. Private note investing can present some very profitable opportunities and the investment is secured with a first lien on the property being financed. What, as an investor, can you expect when investing in your first private note?

When the note is secured by a first lien, it means the investment can never turn to zero. Unlike a stock or mutual fund, values cannot fluctuate and in the event a publicly traded corporation files for bankruptcy, the stock is worthless. The property being financed also has a substantial equity position with the down payments adding up to 30 and 40 percent down and more in some cases.

Private note investing means investors are paid monthly and do not have to wait until a project has been completed and sold before receiving any returns. Most such projects have qualified buyers already preapproved by their bank and are simply waiting for the project to be sold and transferred. Once sold, the private investor decides to either recover the initial principal or roll the funds into the next project. Private notes are shorter term in nature as a project is typically acquired and completed in less than 24 months.

There are two primary types of private note investing, pool and direct. With investor pools, private individuals provide funds to the fund manager and as a new project is discovered, funds are withdrawn from the pool. The disadvantage to pool investing is the individual investor does not have the opportunity to evaluate the upcoming project. With direct investing, the investor has the ability to read the entire prospectus before making the decision to move forward. EquityBuild does not utilize a pool but instead presents individual investment opportunities to its clients before closing on the transaction.