Essential Tips You Need To Know When Investing In Mortgage Notes

by Jan 1, 2022

Investing in real estate is always a good choice because no matter the economic climate, people are going to need a house to live in. It’s one of the basic necessities you just can’t give up. However, investing in real estate is expensive, and not everyone has the extra money needed to purchase a second property.

Enter mortgage notes. Mortgages notes are a great way you can start investing in real estate without having to use up all your savings. Keep on reading to learn our mortgage note investment tips.

What is Note Investing?

In a nutshell, note investing refers to purchasing mortgage notes with the goal of generating profit from them. This can be through interest payments or from the sales you earn after flipping the house and selling it.

How to Invest in Mortgage Notes

If you’re looking to invest in mortgage notes, there are a couple of things you need to know.

First, you need to establish your investment goals. What are you looking for from the mortgage notes? Are you after passive income with low risk? Are you looking to get a big ROI even if it means a higher risk?

Types of Mortgage Notes

Once you’ve figured this out, you need to find the right note for it. There are two main categories of notes you can purchase.

1. Performing Notes – these refer to notes where the borrower is still actively paying off their loan. This is a good note for those looking for passive income.

  • Loan Modifications – as the name implies, these notes have gone through some form of modification since it was started. Usually, these modifications have been requested by the borrowers due to situations like job loss, medical emergencies, or a divorce.
  • Private-Finance – private financing occurs when a private individual lends money directly to a borrower who can’t afford or does not qualify for a bank loan. Just like they would with a bank loan, the borrower makes monthly payments to their lender. Privately financed loans usually occur between two people who already know each other such as neighbors, friends, colleagues, or relatives.
  • Hard Money Loans – hard money loans are typically short-term bridge loans offered to house flippers who need money to renovate a home. For the most part, hard money loans have borrowers who are investors. When it comes to hard money loans, the idea is to flip or renovate a house and then sell it or have it refinanced at better terms in the near future. Hard money loans are one of the more popular types of mortgage notes. While you can make money off of hard money loans, there are risks involved especially since they are connected to the highly cyclical construction market and because the borrowers are investors, not the homeowner.

2. Non-Performing Notes – these kinds of notes are also called distressed notes and are sold by banks and lenders at discounted prices, sometimes up to 90%. With non-performing notes, borrowers have stopped making monthly payments (but the loan has still not defaulted). As an investor, you have a number of options you can do with it. You can purchase the note and discuss modification plans with the borrower, reach a lump-sum settlement with the borrower, or if all else fails, foreclose on the property. Non-performing notes usually have the highest returns but also come with the biggest risk.

Investing in mortgage notes can be lucrative, but only if you do the proper research beforehand. As with any kind of investment, you need to understand the risks involved so you can choose the right kind of investment for you.


Melanin Homes makes investing in mortgage notes in New York easy and efficient. We have a variety of mortgage notes for sale, so you can find the one that’s right for you and fits your goals. We offer fairly priced mortgages notes that can provide you with highly competitive returns. we even offer free consultations for anyone interested in investing, with no requirement to invest if they aren’t ready yet.

Visit our website to contact us today to start your mortgage notes investing journey.

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