Because real estate notes are available at a discount, they can provide an attractive return. For instance, a real estate note with $100,000 in current loan balance might be available for purchase at only $80,000, providing the investor $20,000 in profit or a 20% return.
As the note holder, you’ll receive regular payments on your note until the mortgage is paid. It’s like having paycheck-like income, taxed as regular income, but without the Medicare and Social Security taxes.
For the first year only, income you receive from note payments is taxed as regular income. After that, the income is taxed at the lower capital gains rate.