Real Estate Note Investing 101: An Interview with Loc Rao

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Loc RaoLoc Rao is a real estate note investor who gives generously of his time to help other investors. In our interview with Loc (26:53 minutes), we cover all the basics of note investing and then some. If you’re looking for alternative investment strategies and have an interest in real estate paper, notes, or mortgages, then sit back and get out your notebook – this primer is for you.

Be sure to read and watch dozens of other real estate interviews from BiggerPockets today!

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Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 850,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.


  1. Great interview guys.
    @Loc – In the circumstance where you had multiple parties contributing funds to buy one note, are there SEC regs or guidelines to follow? Also, when lending money in note origination, you can have a fractionalized note where multiple parties contributed to lend on the new note. In such cases, it is required that each of the parties lend no more than 10% of their net worth. Is that the same for when buying existing notes using multiple parties?

    • Will – I have only done “pooling” with family, and in that instance, I did not check as to whether there were SEC regulations I had to follow.

      As to your 2nd question, I am not aware of any such guidelines.

      I apologize for not having better answers, but when I cross those bridges, which will happen sooner or later, I will update everyone.

  2. So Loc I have a question.As a real estate broker I know tons of professionals such as Doctors,Lawyers that write down everything in the CORP and pay themselves very little to minimize taxes.

    They might want to buy a property and have tons of cash flow from their business and income it just doesn’t show on paper.It’s amazing people with an 800 credit score and businesses with long histories just can’t get a loan.

    Typically if the interest rate is 4% then they might take owner finance at 6 or 7%.These professionals will not pay something out there like 10% they just won’t buy.

    Typically the buyers that I see that will pay a real high interest rate have bad credit or are high risk.So if I was rehabbing a property to offer owner finance as you suggest and you bought the note what would the numbers look like?? Thanks

    • Joel,

      I don’t originate these loans, nor do I lend, but here are my thoughts: if I were lending/originating to these people, the interest rate I would charge would still be above market but below usury levels. The only way I would mitigate my risk/exposure would be to require a large down payment (30%+). So, for example, if I’ve got a SFR buyer in California who is going to owner-occupy, but they have sub-620 credit, I would probably charge in the neighborhood of 8-9% after taking 30% down.

      As a note buyer, if the payor is shaky and there wasn’t a significant down payment, then this is probably a note I would pass on unless I like the actual collateral and my intention is to own the property down the road.

      As to the working professionals (doctors, lawyers) who can’t lend conventional lending, they know this, so as an originator I would guess that it becomes a negotiating game, as well as a test of how badly they want the property/how badly the seller wants to sell the property.

  3. A fascinating aspect of real estate investing. Great info. Learn something new everyday.
    I did hear of someone in my area buying notes from the smaller neighborhood banks who portfolio their loans. I am assuming it was mortgage notes. It seems the smaller banks have no problem dealing with individuals buying up bad loans. (I’m assuming) But it seems like you are buying performing loans which is whole different story.

    Fascinating. Thank you for the wonderful interview.

  4. Fair enough Loc. On fractionalized notes that are originated, I know for sure that each investor may not invest more than 10% of their net worth, I am just not sure about purchasing existing, if the rule is the same. I would assume it is.

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