Once you have decided to broaden your investment portfolio by including mortgage note
investments, the obvious question becomes, “Where do I find mortgage notes to buy?”
There are numerous sources out there for purchasing mortgage notes. This is a list of just a few
of them, to get you started.
Banks
Banks and other lending institutions obviously hold large numbers of mortgage notes. And yes,
they frequently sell them – especially non-performing notes. However, large banks and lenders
sell mortgage notes in extremely large batches – large enough that small investors will not have
the funding to purchase them. If a small investor is looking to purchase mortgage notes from a
bank, they are most likely to find success with smaller banks in their target markets.
Hedge Funds
Hedge funds combine the resources of several large investors, so they have the funding to buy
those extremely large batches of mortgage notes that the larger banks and other large lenders
sell. Because the larger banks and lenders sell mortgage notes in such massive quantities in a
combined “pool,” the hedge funds that purchase the pool of notes end up with some mortgage
notes that do not line up with their investment preferences. These are the mortgage notes
those hedge funds sell to smaller investors. This is a very popular option among small investors
who choose to include mortgage note investing in their portfolios.
Courthouse Leads
This option requires some time at the courthouse followed by sending out direct mail but can
provide some solid information and opportunities. Search courthouse records for mortgages
and other contracts for seller-financed transactions, then send a letter to the seller offering to
purchase that contract. Courthouse records are public information, though, so the same seller
may be contacted by multiple mortgage note investors.
Real Estate Ads
Thoroughly search real estate ads for properties “for sale by owner.” These are the properties
that would later be found in the courthouse searches. You can find these ads in the classifieds
section of newspapers – both print and online, sale-by-owner websites, and various real estate-related publications. Once you identify these sellers, make contact and explain your offer. If the seller is interested you still have to wait for the property to sell, so there is an unknown
wait time with this option, but it can generate a decent number of leads.
Loan Servicing Companies
Loan servicing companies take over the day-to-day management of a loan. They collect
monthly payments, pay taxes and handle other aspects of a loan for the lender. So they have a
business relationship with both buyers and sellers, opening a door for a mortgage note investor
to purchase notes. Not all loan servicing companies offer this option, but it is definitely worth
contacting them to find out.
Online Sources
A quick online search will provide information on numerous online exchange sites where buyers
and sellers connect to arrange transactions for selling/buying mortgage notes. On these sites
you will find a variety of investors, including real estate investors and private note investors.
Private Note Investors
Private note investors are established mortgage note investors. They will have any number of
non-performing, and even some re-performing notes for purchase. Since they are established
investors, they will have purchased multiple mortgage notes and rehabbed some – which they
now want to cash in on or, may have decided there are some that they just do not want
anymore. You will not be purchasing their best-performing notes, obviously, but if you are
willing to put in the time and effort, this is still an option that can reap rewards.
Local Business Functions
As with other real estate-related ventures, networking is a vital part of mortgage note
investing. Stay up-to-date on calendars of local business real estate or mortgage broker
conventions, Chamber of Commerce meetings and events, even events related to law or
finance. These meetings and events are prime opportunities to connect with other
professionals who, even if not currently, may at some point have clients who have mortgage
notes they want to sell.
Direct Mail
This avenue may initially appear to require a lot of effort for minimal payoff. However, this is
also another form of networking, although indirect. Getting your information into the hands of
anyone who may have clients with mortgage notes to sell can actually pay off. Real estate agents, financial planners and, mortgage brokers are just a few of the professionals you should include on your mailing list. As with other networking options, this is a method that is likely to continue providing opportunities for investing over time.
But again, having an investment plan in place before approaching any mortgage note seller is
vital. Know your budget – have you factored in fees and closing costs? Know what you plan to
do with the note (sell it to someone else for a profit, keep it for a monthly income…). The
smoother the transaction with the seller, the more likely they are to direct more sales your way.
Companies like Melanin Homes can help you learn the process. Melanin Homes also has a
Preferred Buyer program which is an excellent option for mortgage note investors looking to
buy one or several notes.
If you are looking for a new approach to passive income, sign up now with Melanin Homes to
become a preferred buyer or schedule a FREE consultation to learn more. Watch for more details and information on the various aspects of mortgage note investing in our future blogs posts
