Rising Into Financial Freedom Through the Power of Notes with Sierra Davis
with Sierra Davis
Most real estate investors think about properties — but what if the real opportunity is in the paper behind the deal? Sierra Davis joined Mattias on The REI Agent podcast to explain how note investing creates predictable passive income streams and why it might be one of the most overlooked paths to financial freedom in real estate.
What Exactly Is Note Investing?
For anyone unfamiliar with the concept, note investing means buying the debt secured by real estate rather than the property itself. When someone finances a home purchase with a seller-financed note, that note can be sold to an investor at a discount. Sierra broke down how this works in practical terms — the buyer keeps making their payments, but now those payments go to the note investor instead of the original seller. It’s a numbers-driven strategy that appeals to investors who want predictable returns without the headaches of property management.
Here’s a concrete example of how it works: A seller has a home worth $200,000. A buyer agrees to purchase it with owner financing — meaning the seller finances the deal instead of the buyer getting a traditional bank mortgage. The terms might be 30 years, 6% interest, $1,200/month payment. The seller now has a note worth $200,000 on their books, but they need cash for other reasons.
Enter the note investor. Sierra might approach the seller and offer them $160,000 for that $200,000 note. The seller gets a lump sum of cash today instead of waiting 30 years for payments. Sierra now owns the note — the buyer’s obligation to pay. The buyer continues making their $1,200 monthly payments to Sierra instead of the original seller. Sierra receives $1,200/month from that note, which at the discounted price represents an 8-9% yield instead of the original 6%.
That discount — the gap between the note’s face value and the price paid — is the note investor’s profit engine. It comes from the seller needing cash now more than they need payments over time, or from the note being performing but risky enough that banks won’t buy it.
The key difference from property investing is psychological and operational. You don’t own the property. You don’t manage tenants. You don’t fix roofs. You own the paper — the right to receive monthly payments. If the borrower stops paying, you have legal remedies, but the first step is working out a modification or accepting a deed in lieu of foreclosure. It’s a different skill set than property management.
How Did Sierra Get Started in Note Investing?
Sierra’s entry into note investing came from a desire for passive income that didn’t require managing tenants or dealing with maintenance calls. She discovered that by using private money to buy notes at a discount, she could create win-win situations — the original seller gets a lump sum of cash, and Sierra gets a stream of monthly payments at an attractive yield. That model proved repeatable and scalable in ways that traditional property investing sometimes isn’t.
Sierra didn’t stumble into note investing by accident. She was actively real estate investing, and she realized something: properties create income and appreciation, but they also create work. Every dollar of cash flow comes with tenant calls, maintenance emergencies, and management headaches. She was successful, but she wasn’t free.
That’s when note investing appeared on her radar. She started small, probably with one or two notes, learning the mechanics and the risks. But something clicked. The numbers were better than property investing — the yields were higher per dollar invested. The work was lower — no property management overhead. The timeline was predictable — you know the payment schedule, you can model the cash flow.
She refined her sourcing, learning where notes come from (seasoned note brokers, wholesalers, note packages, direct seller approaches). She learned underwriting — how to evaluate whether a note is actually worth buying at the offered price. She learned the legal side — note contracts, state variations, remedies for non-performing notes.
What made her stick with notes instead of returning to property investing was the compounding effect. With properties, you’re limited by capital, equity, and leverage. With notes, if you can model the risk correctly, you can scale capital efficiently. And the cash flow is more predictable, which means you can forecast and plan with more certainty.
Sierra built a business around performing notes specifically — notes where the borrower is paying, the risk is lower, and the income is predictable. That focus allowed her to develop expertise in a specific market segment. She became really good at evaluating performing notes at the right price. That expertise is valuable, and it creates a competitive advantage.
What’s the Difference Between Performing and Non-Performing Notes?
One of the most valuable parts of the conversation was Sierra’s explanation of performing versus non-performing notes. Performing notes are those where the borrower is making regular payments — these offer steady, predictable income. Non-performing notes are where the borrower has stopped paying, which creates risk but also opportunity for investors willing to work out deals or go through the foreclosure process. Sierra shared why she focuses on performing notes for the reliability and peace of mind they provide.
The distinction matters significantly because it determines both risk and return. Performing notes are essentially bond-like investments. You know the payment schedule. You know the yield. You can model cash flow with relative precision. If you buy a $100,000 performing note at 7% yield, you know you’re getting approximately $7,000 per year in payments (before accounting for principal paydown).
Risk with performing notes is lower because the borrower has demonstrated the willingness and ability to pay. The default risk exists — any borrower can stop paying — but it’s manageable. You’ve reduced information risk because the note is actually performing, you can see the payment history, and you can evaluate the borrower’s equity cushion (if the property dropped 20% in value, would they still be willing to pay or would they walk?).
Non-performing notes are a different animal entirely. These are notes where the borrower has stopped paying — sometimes for months or years. The yield is much higher (15%, 20%, sometimes 30%+) because the risk is much higher. You’re not just getting a higher yield — you’re taking on the risk of workout, modification, or foreclosure.
That’s where most of the real money in note investing lives, technically. Buy a $100,000 non-performing note for $30,000, work out a modification with the borrower, bring it current, and the note now has significant value. Or foreclose, sell the property, and capture the difference. But that requires skill, capital for carrying costs during the workout, and willingness to get involved in complex negotiations.
Sierra’s choice to focus on performing notes is strategically smart for her goals. She wants passive income with minimal work. Non-performing notes are active investing, requiring skills more similar to property renovation or distressed deal management. Performing notes deliver the passive income without the operational demands.
The tradeoff is yield. A performing note might return 6-8% annually. A well-sourced non-performing note returning 20%+ seems vastly superior. But that 20% isn’t guaranteed — it requires execution, carries legal risk, and requires capital to weather the workout period. Sierra chose reliability over maximum yield, which is a valid choice that many investors should consider.
Why Should Real Estate Agents Consider Note Investing?
Sierra made a compelling case that note investing is an ideal complement to an agent’s business. It doesn’t require showing houses, negotiating inspections, or managing properties. The returns are predictable, the time commitment is minimal once the note is acquired, and it diversifies an agent’s income away from commission-only earnings. For agents looking to build long-term wealth alongside their active business, notes offer a path worth exploring.
Real estate agents are in a unique position to source notes. They see deals. They understand local markets. They have relationships with sellers. That information advantage isn’t easy to replicate. When a seller is financing their own deal, the agent might be the first to know. When a wholesaler has a note they want to move, they often call their agent contacts first. The sourcing advantage is real.
The income diversification argument is compelling. Agent income is transactional and variable. One month you close three deals and earn $15,000. The next month you close zero deals and earn $0. That volatility is stressful, and it forces agents to constantly hustle to maintain income. Note income is different. Once you own the note, you’re receiving payments regardless of whether you’re actively working. It’s income that compounds on its own.
That stability changes your psychological relationship with your agent business. When you’re desperate to close deals to pay bills, you make bad decisions. You undercut your prices. You take clients who are a nightmare. You stay in deals longer than you should. When you have predictable note income covering your base needs, you can be more selective. You can charge better prices. You can turn down bad clients. You can focus on deals that make sense instead of deals that just close.
The mechanics also fit agents’ skill sets. You’re evaluating paper the same way you evaluate a real estate deal — looking at numbers, understanding market value, assessing risk. You’re negotiating terms with sellers and other investors. You’re managing a financial asset. These aren’t foreign concepts. Many agents will find note investing more accessible than property investing because it doesn’t require property management skills.
The capital requirements are also more flexible. You don’t need to save $50,000+ for a down payment and closing costs on a property. You could start note investing with $25,000-$30,000, depending on the notes available in your market. That lower barrier to entry means more agents can get started.
How Do You Find and Evaluate Notes at the Right Price?
Sierra’s sourcing strategy is a blend of building relationships and being disciplined about valuation. She works with note brokers and wholesalers, but she also approaches sellers directly. The best deals, she explained, come from relationships and understanding the seller’s motivation.
Finding notes is easier than many people think, but pricing notes correctly is harder. Most notes come from a few sources: note brokers (who have inventories and earn a finder’s fee), wholesalers (who package notes and sell them), direct outreach to sellers (who might not know a note can be sold), and note packages from larger investors or institutions.
Building relationships with note brokers is the fastest way to get deal flow. But you need to prove you’re a real buyer. Sierra probably had to buy a few notes at asking prices before brokers started sending her the really good opportunities. That’s the game — demonstrate capital and execution, and the good deals flow to you.
Valuation is where the work actually happens. When a note is offered, you need to underwrite it: What’s the balance? What’s the interest rate? What’s the payment? How much time is left? What’s the equity position — if you foreclosed today, how much would the property sell for and how much would you net after sales costs? What’s the payment history? Are there any liens senior to your note? Has the borrower experienced credit problems?
From that data, you calculate the yield at various purchase prices. If you pay 80% of the note’s face value and the yield is 8%, does that make sense given the risk? If the note’s performing but the buyer has minimal equity, is the default risk high enough to demand a 10% yield? Sierra’s underwriting discipline determines which deals she does and which she passes on.
The margin of safety matters. Don’t buy notes at prices where everything has to go perfectly. Buy at discounts where the deal works even if something goes moderately wrong. That discipline protects capital and compounds returns over time.
About Sierra Davis
Sierra Davis is a note investor who specializes in buying performing seller-financed notes at a discount. She is known for her analytical approach to deal evaluation and her commitment to helping others understand how note investing can create passive income and long-term financial freedom.
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