Investors General FAQs

Q: What is a Real Estate Receivable?

A: A real estate receivable is a document (or documents) secured by real estate that obligates one individual or company to make payment(s) to another individual or company. These receivables are created when a piece of real estate, such as a house, is sold. The purchaser gives the seller a cash down payment and the balance is paid to the seller in periodic, usually monthly, installments. Therefore, payments are required from the property purchaser (payor) to the property seller (payee). The property seller provides the financing to the purchaser the same way a bank normally does. This is called seller-financing or owner-financing. The legal documents that accomplish these tasks generally take one of three different forms: Promissory Note & Deed of Trust, Promissory Note & Mortgage, or Real Estate Contract. The generic term for each of these is a real estate receivable. For convenience, we refer to all real estate receivables as "notes." The payments a property seller will receive from these notes are an asset and like any other asset can be sold for a lump sum of cash.

Q: How liquid are investments in real estate receivables?

A: These are generally liquid, negotiable instruments and there are numerous other companies and private individuals that are competitively seeking these types of investments. Depending upon the circumstances, their transfer may need to comply with applicable federal and state securities laws.

Q: How much risk is associated with a purchase of real estate receivables?

A: Since AEI only invests in receivables where the original investment does not exceed a total of 75% of the property value, our default rate has been historically very low. Though the national average is significantly higher, AEI has experienced a foreclosure rate of less than 2% of all receivables it has purchased for most years since 1979.

Q: What if a default occurs?

A: Since generally the value of the real estate exceeds our investment amount, in most cases there is a potential profit to be realized if the property were to be foreclosed upon and resold. Historically, other real estate investors interested in purchasing distressed properties have shown interest in acquiring these loans in default.