Navigating the 2026 Real Estate Note Market in Northern California

Current Market Snapshot in Butte County and Surrounding Areas

Real estate notes depend heavily on the underlying property market. In Butte County, recent data shows a slight cooling compared to last year. The median home sale price in October 2025 was about $416,000, down approximately 4.3% year-over-year. Homes typically sold within the low 40s in days-on-market, indicating a steady but not overheated market.

Chico, a key city in the region, saw a median sale price near $452,000 in October 2025, also showing a modest decline from the previous year. These price adjustments reflect a market that is balancing affordability with demand.

For note investors, softer prices can reduce the risk of speculative flips, which often inflate prices unsustainably. Instead, this environment encourages borrowers to purchase properties with more equity or better loan-to-value ratios, improving lender security. The typical time homes spend on the market suggests that borrowers have reasonable exit options if their rehab budgets and after-repair values (ARV) are realistic.

Five Key Drivers Shaping the 2026 Note Market

1. Interest Rates and Mortgage Trends

Mortgage rates remain elevated compared to recent years, supporting attractive yields on real estate notes. Many forecasts predict a gradual easing of rates through late 2026 rather than a sharp drop. This slow decline could encourage more borrowing and refinancing activity, but investors should prepare for continued rate volatility.

2. Property Prices and Local Market Conditions

The slight softening in Butte County and Chico prices creates better entry points for investors. Lower prices mean borrowers often need to bring more equity, which strengthens loan security. However, investors must carefully evaluate each deal’s structure and the borrower’s financial position to avoid overexposure.

3. Wildfire Risk and Insurance Challenges

Insurance availability and premiums remain a significant concern in wildfire-prone areas like Butte County. Higher insurance costs can affect property affordability and reduce exit values, even when the property itself is sound. Investors should factor in these risks when underwriting notes and consider how insurance trends might impact borrower repayment ability.

4. Borrower Exit Strategies and Rehab Realities

Successful note investments depend on borrowers having clear, achievable exit plans. The current market’s normal days-on-market suggest that well-planned rehabs with realistic budgets and timelines can succeed. Investors should scrutinize borrower plans and ARV estimates to ensure they align with local market conditions.

5. Deal Quality and Structure Discipline

The combination of market softness, rate uncertainty, and insurance challenges rewards investors who focus on deal quality and disciplined underwriting. Conservative loan-to-value ratios, thorough borrower vetting, and clear exit strategies will be essential to navigating 2026 successfully.

Smart Year-End Tax Moves for Real Estate Investors

As 2025 closes, real estate investors should consider several tax strategies to improve their financial position heading into 2026. While this content is educational and not tax advice, discussing these options with a CPA or attorney can help tailor moves to your situation.

• Maximize Depreciation Deductions

Accelerate depreciation on investment properties where possible to reduce taxable income.

• Consider 1031 Exchanges

Deferring capital gains taxes by reinvesting proceeds from property sales into similar investments can preserve capital.

• Harvest Losses Strategically

Selling underperforming assets at a loss may offset gains elsewhere, lowering overall tax liability.

• Review Entity Structures

Ensure your ownership entities are optimized for tax efficiency and liability protection.

• Plan for Interest Expense Deductions

Track and document interest paid on loans carefully to maximize allowable deductions.

These moves require professional guidance to fit your unique portfolio and goals.

What Investors Should Focus on in 2026

For those active in the Northern California note market, especially in Butte County, the year ahead calls for careful deal selection and risk management. Here are practical steps to consider:

• Prioritize Notes with Strong Collateral

Focus on properties with solid market fundamentals and manageable wildfire risk.

• Vet Borrowers Thoroughly

Confirm that borrowers have realistic rehab plans and sufficient equity.

• Monitor Insurance Market Changes

Stay informed about insurance availability and premiums in wildfire-exposed areas.

• Stay Flexible on Exit Timelines

Allow for some variability in borrower exit timing given market conditions.

• Keep an Eye on Interest Rate Movements

Adjust your underwriting assumptions as mortgage rates evolve through the year.

By combining local market knowledge with disciplined underwriting, investors can find selective opportunities that balance yield and risk.

Conclusion: Preparing for 2026

As we look ahead to 2026, the Northern California real estate note market presents both challenges and opportunities. By staying informed and adapting to changing conditions, I believe investors can navigate this landscape effectively. Emphasizing quality deals, understanding local market dynamics, and maintaining a disciplined approach will be crucial.

Investing in real estate notes requires a clear strategy and a solid understanding of the market. With the right tools and insights, we can position ourselves for success in the coming year.

For more information on how to navigate these changes, consider exploring resources that provide clarity and structure in private lending. This approach can help you build predictable passive income secured by first-position deeds of trust.