Finance & Capital
Finance & Capital
Encyclopedia terms, articles, and lessons about finance & capital.
Articles
February 25, 2026
ArticleHow to Allocate Your Real Estate Note Investing Portfolio
Note portfolio allocation: how to balance yield, reinvestment risk, and resolution timelines across performing and non-performing mortgage notes.
February 16, 2026
ArticleHow to Buy Mortgage Notes with a Self-Directed IRA
Use a self-directed IRA to buy mortgage notes with tax-deferred or tax-free growth. Step-by-step setup, custodian selection, and prohibited transaction rules.
Lessons
Encyclopedia Terms
Accounting
Accounting in note investing tracks loan-level and portfolio-level transactions for accurate tax reporting, profitability analysis, and investor.
Accounts Payable
Accounts payable (AP) is money owed to vendors for services received. For note investors, AP includes fees to servicers, attorneys, title companies, and.
Accredited Investor
An accredited investor meets SEC financial thresholds like $1M net worth or $200K income, qualifying them for private note fund offerings and syndications.
Basis Point
A basis point equals 0.01% and is used to express interest rate changes and pricing spreads in mortgage note transactions.
Bridge Loan
A bridge loan is short-term financing that covers the gap between an immediate capital need and longer-term funding for note investors.
Capital
Capital is cash or liquid assets available to purchase mortgage notes. The amount and source of capital shapes an investor's deal flow and pricing power.
Cash-on-Cash Return
Cash-on-cash return is annual pre-tax cash income divided by total cash invested. Note investors use it to price performing loans by working backward.
Compound Interest
Compound interest is calculated on both the original principal and all previously accumulated interest, accelerating growth over time.
Entity
An entity is a legal business structure — LLC, corporation, or trust — that separates personal assets from note investing liabilities and meets licensing.
Freddie Mac (FHLMC)
Freddie Mac (FHLMC) is a GSE that buys and securitizes mortgages, playing a central role in the secondary mortgage market.
General Partner (GP)
A general partner (GP) is the managing partner who controls operations and bears unlimited liability in a note fund, while limited partners provide.
Ginnie Mae (GNMA)
Ginnie Mae (GNMA) is a U.S. government agency that guarantees mortgage-backed securities backed by federally insured loans.
Gross Return
Gross return is total income from a note investment before deducting servicing fees, legal costs, and other expenses — compare to net return for true.
Hard Money Loan
A hard money loan is a short-term, asset-based loan from a private lender, underwritten on collateral value rather than borrower credit — common for rehab.
Hedge Fund
A hedge fund is a private pooled investment vehicle that buys large portfolios of mortgage notes from banks and GSEs, often reselling loans downstream to.
Leverage
Leverage is the use of borrowed capital — credit lines, debt facilities, or private loans — to increase buying power and amplify equity returns when.
Line of Credit
A line of credit is a revolving borrowing facility used both as a loan structure (HELOCs) note investors buy and as a portfolio financing tool for fund.
Liquidation
Liquidation is converting a note or REO property into cash through sale, payoff, or foreclosure — the final step in realizing returns on a note investment.
Liquidity
Liquidity measures how quickly an asset converts to cash. Mortgage notes are illiquid, requiring weeks or months to sell — making capital reserves.
LTV (Loan to Value)
LTV is the ratio of a loan's unpaid balance to the property's market value. A lower LTV means more equity protecting the note investor's lien position.
Mortgage-Backed Security
A mortgage-backed security (MBS) is an investment created by pooling mortgage loans and selling shares to investors on the secondary market.
Par Value
Par value is the face value or unpaid principal balance of a mortgage note. Buying below par creates a discount that drives investor returns.
POF (Proof of Funds)
Proof of funds (POF) is a bank statement or letter verifying a buyer has the capital to close a note purchase. Sellers require POF before accepting offers.
Present Value
Present value is the current worth of future mortgage payments discounted at a specified rate — the foundation of every note pricing calculation.
Private Equity
Private equity refers to investment capital deployed into private assets, including distressed mortgage note portfolios.
Real Estate Investment Trust
A REIT is a company that owns or finances income-producing real estate, giving investors access to real estate returns with stock-like liquidity.
ROI (Return on Investment)
ROI measures total profit on a note investment as a percentage of capital invested. It is simple but ignores hold time — pair with IRR for a full picture.
SDIRA (Self-Directed IRA)
A self-directed IRA (SDIRA) lets investors hold mortgage notes in a retirement account, enabling tax-deferred or tax-free growth on note income.
Special Purpose Vehicle
A special purpose vehicle (SPV) is a separate legal entity created to isolate financial risk in mortgage note transactions.
Velocity of Money
Velocity of money measures how quickly a note investor cycles capital from acquisition through resolution and back into the next deal.
W-9
IRS Form W-9 collects a taxpayer identification number for payment reporting and is exchanged at every stage of a mortgage note transaction.
Warehouse Line
A warehouse line is a revolving credit facility that note investors and mortgage companies use to fund loan acquisitions before resale.