Leveraging Note-on-Note Financing: A Creative Tool for Real Estate Investors

[Jackie Carmichael]

One of the more advanced strategies I’m seeing investors use today is note-on-note financing — essentially using performing or non-performing loans as collateral to access capital.

Here’s how it works:

• An investor buys a non-performing loan (NPL) secured by commercial real estate (CRE).

• Instead of waiting for foreclosure or borrower resolution, they use the note itself as collateral to borrow short-term capital.

• The lender records a collateral assignment against the deed of trust. If the loan pays off, the lender is repaid at closing; if the note converts to ownership through foreclosure, the lender now has direct security in the property.

Why it matters for investors:

• Leverage Equity: Many NPLs trade at steep discounts (25–50% LTV). Note-on-note financing lets investors recycle capital faster to buy more loans.

• Short-Term Flexibility: Terms usually run 2–8 months, which matches the typical workout/liquidation timeline.

• Diversification: By leveraging capital, investors can work multiple loans in parallel instead of tying up cash in just one asset.

Where Summit Partner Lending Fits:

At Summit Partner Lending, we specialize in short-term bridge structures that can be adapted to note-on-note strategies. While not every lender is comfortable with this collateral, we understand the mechanics and the safeguards that make it work:

• Leverage typically 70–80% of note purchase price.

• Loans structured with interest reserves for added security.

• Direct collateral assignment recorded, ensuring repayment through title.

For investors buying NPLs secured by CRE, this strategy can be a powerful way to scale — turning one-off opportunities into a repeatable model.

If you’re exploring note-on-note financing or want to better understand how it could apply to your portfolio, happy to connect and walk through a sample structure.