Promissory Notes vs. Annuities

December 18, 2021

Promissory Notes are a financial product that can be linked to all kinds of different assets.  The most common Promissory Notes are those that are linked to real estate.  If you are looking for ultimate safety, an annuity is going to be the absolute best option and will come with the highest guaranteed interest rate.

But what if you have idle money, or dead money, sitting around and you want to invest it somewhere that will be protected and pay a very, very healthy interest rate?  Then a Promissory Note is worth your time to investigate.

The way a Promissory Note functions, at least in the real estate world, is quite simple:

  • Company ABC is willing to accept private lending dollars to perform various real estate activities including — purchasing financially and/or physically distressed properties, rehabbing, flipping to wholesalers or private buyers, holding for rentals, and new construction (There is still a major inventory shortage at the time of this writing, so don’t expect to see the real estate market slow down anytime soon).


  • Before Company ABC accepts your private lending dollars, your money goes through a title company and is not released to Company ABC until a lien is placed against one of their already rehabbed and paid for properties.  The title company verifies the value of the property before they release the money to Company ABC.  Depending on the dollar amount you have invested, depends on what “lien position” you will receive.  (Never work with a company that offers anything more than 1st or 2nd lien positions)


  • Now your money is collateralized and backed by a tangible asset that you can foreclose on, and sell to get your money back, in a worst-case scenario.


  • Company ABC uses your money for 24-60 months to perform various real estate activities, as listed above and pays you a contractual interest rate in one of two ways.  Either a monthly interest payment that is directly deposited in your checking account monthly or the interest will be deferred to the end of the agreed-upon term.  If you decide to defer your interest, that rate compounds quarterly.


  • If Company ABC has a buyer for the property that is collateralizing your money, then you will sign a “lien release” and the title company will go through the verification process all over again with the new property that Company ABC is giving you as collateral. 


  • At the end of your term, you can have all of the interest and principle returned, pull the interest out (if it was deferred), or continue to let it ride with a new agreement.


That’s literally it!  Super simple and super safe!

What are the risks and how do we mitigate them?

Money is Illiquid:  Your money will be used throughout the entire agreed-upon term.  If you think you will need the principle amount, then you would want to look at the shortest term offered, which is 24 months, or you would want to consider taking the monthly interest payments.

The Real-Estate Market Crashes (2008):  Even though there is still a major shortage in inventory for people who want to buy a primary residence, that personally does not bring me comfort.  However, this particular company thrived in the 2008 crash because of its business model.  Because they only deal with single-family homes in “bread-and-butter” neighborhoods, if people are buying then they are selling.  If the market turns and no one is buying, then they are renting their inventory.  This is a key point when looking at promissory real estate notes.  Stay away from commercial, Section-8 Housing, and massive “spec-homes” (aka, McMansions).  If the company is collateralizing a home between $200k – $500k, they may not be able to sell it during a downturn, but they could certainly rent it.

Company ABC goes completely bust:  This is what I call, “The Nuclear Option.”  Meaning, if everything goes to complete $#@* and they go out of business,  how do you protect your money?  First, let’s make sure the company has a good track record and good financials (i.e., verify through a company like Dunn & Bradstreet).  Second, don’t ever use money that you depend on for survival.  I always recommend my clients have at least $50,000 in emergency funds that are totally liquid, if they are retired, and have no other source of income besides Social Security. 

But this is where the “promissory note” portion comes in, and why it’s very important to use a 3rd party title company for your lien.  If Company ABC completely disappears for whatever reason, then legally you can foreclose on the property that is collateralizing your money, sell it, or keep it for rental income, and get the money back.  You would most likely incur some expenses from a real estate agent if you were to sell it, but you still have a right to go after all of the company’s assets.  Everything is on the table at that point – trucks, tools, materials, office furniture, undeveloped land, cash, etc.  There is recourse above and beyond just the property that you hold a lien against.

There are a lot of companies that do this type of private lending program, and some of them have gone bust.  That is mainly because they were in a commercial sector with multi-million dollar properties.  There is only one company that I have decided to work with, and one company only.  That’s because this particular company performs everything through a 3rd party title company that they have no vested interest in, they only operate in single-family homes in middle-middle to upper-middle-class neighborhoods (no Section-8 & no McMansions), and they are the only company I know of that allows a public audit of their financials every month, performed by the auditing firm, Dunn & Bradstreet. 


Here are some FAQ’s that I hear on a regular basis:


How is my money protected?  The money is passed through a 3rd party title company that verifies the value of the property that you will hold a lien against.  If something happens to the company, you can foreclose on the property to get your investment back.

What if the property is damaged?  The real estate company has all of its properties fully insured, just as you have your own home secured.  You are not liable for any damages or injuries that could occur at that residence.  It is no different than the bank that holds the mortgage on your personal home.  If someone slips and falls, that person does not go after the mortgage company.  It is handled through insurance.  Plus keep in mind, you are not the “owner” of this property.  You secure a “lien” against it.  Meaning, Company ABC cannot sell this property without your permission, but you are not responsible for that property.   

What if the property does not sell, or does not rent?  Keep in mind that your money and interest payments are secured by all income revenue sources of the real estate company (i.e., rental incomes, real estate sales profits, construction revenue, property management, etc.).  The property itself is the collateral to secure your investment.

Is there a minimum investment amount?  Yes.  The minimum is $25,000.

What if I need to withdraw my investment early?  Keep in mind that this is a stated agreement on the length of the term.  If there is even a slight possibility that you will need your money back before the end of the term (24-60 months), then you should consider keeping the money in a savings account or a money market.  However, if there is a true hardship, the company will try and work with you to get your principle amount returned.  Normally, at a market discount, or about 80%-90% of your original investment.  Do not use money that you cannot let sit for the agreed-upon term.

Can I use IRA or Qualified Money?  Yes! 

Are there any fees?  No!  Not with the company that I work with.  However, if you use Qualified Money, that money needs to go to an agreed-upon “custodian” that deals with all of the IRS compliance, and they do charge a management fee.  It is a flat annual fee that is very minimal, like a few hundred dollars per year, and it can be paid directly from the IRA and not out of your pocket.

How does Atlas make money?  My company is paid a commission out of the real estate company’s general operating fund, and nothing comes out of your investment.  Meaning, 100% of your money starts earning interest the day of your closing.

Does Marty have his own money in this?  Yes, I do!  I am personally very comfortable with this whole process because of all the verification processes and fail-safes to protect my money, and I am using this company to build my personal wealth and future retirement plans.

Why would this company pay me such a high-interest rate when they can just go to a bank for a loan?  This is a great question and was the first one I asked when this concept was introduced to me.  In the world of real estate, the good deals are snatched up fast by people with cash.  If this company had to go through the process of getting a mortgage for every single investment opportunity they came across, they would never get them (think back to the last time you applied for a new mortgage or a refinance of your current loan.  How long and aggravating was that process?). It takes forever!  They need and want liquid operating capital.

But couldn’t they just have a line of credit with a bank since they have all of this property for collateral?  Yes, and they do.  They also use banking institutions to run and expand their company.  However, in 2008 when everything went bust, banking institutions called their credit lines or shrunk them next-to-nothing, even if the companies were financially sound.  One of the reasons this particular company thrived is the fact that they had this private lending program.  When everyone else had their liquidity dried up by the banks, this company was able to thrive because they could pick up all the great deals that were available in the years following the 2008 collapse. 

So, it’s worth it to them to pay a couple of percent more in interest to have control and liquidity so they can take advantage of the best opportunities.

Can I choose the property that secures my investment?  No.  Keep in mind that the 3rd party title company verifies the value of the property being offered for collateralization and will not release the money until it does.  And it is highly possible that the property securing your money will be sold during your term and a new one will be assigned.  This is a good thing because it means the company is making money and ensuring your returns.

“I’ve owned rental properties before, and I’ve never made that type of return.  How can they pay that much interest?”  Most likely, if you were a person who owned rental property, you went through traditional routes of getting financing from a bank.  Then you spent all of your time dealing with tenants, chasing rents, and fixing toilets.  All the while having a mortgage that you had to meet every month.  I did all of this myself, was absolutely miserable and had almost no return on my money.

I once heard a wealthy individual say, “the money is made at the buy.”  This is especially true in the world of real estate.  When you can pick up properties for cheap, or you can control the building process, then your returns can be phenomenal.  So, if this particular company can make an average 15%-20% profit on a single deal in a 3–6-month period, they are happy to pay you x% annually when they have the ability to churn your money 2-4 times per year with a 20% return, per deal

If there is a question or concern that I have missed, or if this concept is new to you, then I hope you found this interesting and informative.  Please reach out with any further questions and I’m happy to talk about and disclose this particular company and the interest rates that are available.  That is not a “ploy” to get you to call me.  I’m legally not allowed to advertise the interest rates, but I can discuss them if we have a conversation. 

I personally love this concept and use it myself.  This can be a valuable addition to your retirement portfolio.  Once we have your guaranteed income in place using my Atlas Annuity Strategy, then this is something that definitely needs to be considered because it could be way more predictable and secure than any stock, bond, or mutual fund.

All the best,


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