Why Mortgage Notes Are Great Investment Options For Passive Income And Your First Step

by Sep 30, 2021

Let’s face it. Real estate in New York is a nightmare, for homeowners, tenants, investors, and landlords. While it is one of the most lucrative states to invest in, it can present something of a challenge for a novice, or someone looking to invest passive income. Flipping property requires a lot of hands-on attention, and being a landlord requires dealing with tenants.

But don’t let this deter you from taking a chance on New York real estate! There’s one more way for you to get in the game: real estate’s best-kept secret, investing in mortgage notes.

What are mortgage notes?

You might not have heard of mortgage notes or mortgage note investing, but it is one of the best real estate opportunities available. It’s not often discussed, but it is a great way to build your investment portfolio. Mortgage notes as passive income is also a popular venture.

With all this buzz surrounding them, you might be thinking, “What are mortgage notes, exactly?”

Mortgage notes, also known as real estate lien notes or borrower’s notes, are essentially a promissory note that is secured by a mortgage loan. When you take out a loan on a property and begin making payments for it, that loan is represented in the mortgage note. The mortgage note is essentially a physical promise to pay off the loan.

Mortgage notes tend to be in the possession of banks and other lending institutions, but change hands often for low prices. Behind the scenes, mortgage notes for sale are actively traded, as banks often prefer to sell them instead of holding onto them. Putting mortgage notes for sale allows banks to free up their cash flow.

When purchasing a mortgage note, all rights that go with the note also accompany it. This means that the note is secured by the property it was created for.

Investing in mortgage notes means you purchase an existing mortgage. Once you’ve purchased the mortgage note, that makes you the lender. This means that the person who took out the loan now has to make their payments to you.

This also means you have the rights of a lender. While you don’t own property, you have the right to take collateral if your borrower doesn’t come through on payments.

Types of Mortgage Notes

There are various types of mortgage notes, but for the purposes of this article, we’ll be simplifying them down to these two (2) basic types:


Performing mortgage notes

A performing mortgage note when a borrower remains consistent and timely with payments. It’s a popular option, and a prime example of mortgage notes as passive income. Investing in a number of performing mortgage notes ensures a steady yield on your investment.


Non-performing mortgage notes

On the other hand, a non-performing mortgage note is the exact opposite. A mortgage note is considered non-performing when a borrower is behind on payments by 90 days. While it does not offer the consistent yield of a performing note, it is still a popular option.

Remember your lender’s rights from earlier? Investing in a non-performing mortgage note will allow you to foreclose on the property for collateral, which still yields a profit.

There are many other types of mortgage notes, but they all fall along the spectrum of performing or non-performing.

Advantages of Investing in Mortgage Notes

Mortgage notes are your best bet to get into the New York real estate game. Remember all the headaches that go into flipping properties and becoming a landlord? The advantage of a mortgage loan is that it has a similar type of income, but none of the concerns that go with having to maintain a physical property. Instead, you become the bank, regularly receiving cash flow.

This is the biggest benefit of a mortgage note:

It offers a steady, consistent source of income through mortgage payments. But you will never have to deal with fixing up a property, maintaining the premises, and difficult tenants. As a bonus, mortgage notes are also IRA-friendly!

This is why many opt to invest in mortgage notes. In New York, a state that has a constant stream of people moving in and taking out mortgages to own the home of their dreams, this might be one of our best investment options. Mortgage notes for sale will be readily available!


So, where are all these mortgage notes in New York, and how do you get access to them? Apart from going to the banks themselves, many homebuyers also offer mortgage notes for sale.

One of the best homebuyers to work with when beginning your journey into investing in mortgage notes is Melanin Homes, located right in New York!

What are you waiting for? Invest in your first mortgage note as early as today to reap its rewards as soon as possible.

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