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How To Invest In Mortgage Notes

By June 9, 2021December 13th, 2021Blog, note investing
Looking To Invest In Real Estate Notes?

Buy first position deeds of trust today and collect mailbox money with our simple real estate note investing program.


For many millionaires, real estate is a sure-fire path for success. From house flipping, renting, or investing in mortgage notes there are endless ways to invest in real estate. Each of these investments can have low risks and high returns.

Investing in mortgage notes is a great way to build passive income with minimal management. From finding the right company, purchasing the note, or buying and serving the note, it is an easy way to make monthly income without having to attend to properties or tenants. We cover everything you need to know to start investing in mortgage notes, from how to find the best notes, purchase, and profit from your investments!

What Is Note Investing

While most real estate investors prefer a hands-on approach, mortgage note investing is a great way to make money off of real estate investments without getting your hands dirty.

When homeowners or real estate investors purchase properties with a mortgage, the lender has them sign a promissory note and a mortgage. This note is a promise to repay the debt and outline the terms and conditions of the loan.

Once this note is signed, lenders, banks, and credit unions will sometimes sell these notes to increase their equity and cash flow. Instead of investing in real estate property, these note buyers are investing in mortgage notes.

Note buyers can profit from purchasing the loans as they will receive the interest from these loans, and can purchase them at a discount from the lenders. Note buyers can work with lenders who service their loans for them and receive monthly checks without having to check with the borrower. There are many advantages to mortgage note investing.

Advantages of Investing Mortgage Notes:
  • High Yield Returns – Rates of return that are higher than the bank’s traditional low yield bonds; and higher than most stock dividends.
  • Monthly Income – If you are looking for additional monthly income for retirement, for living expenses, or to build your savings account, we can help.
  • IRA Friendly – This investment provides investors with a way to put to use their self-directed traditional IRA or Roth IRA.  We can recommend several custodian companies that handle the paperwork and hold your IRA while the funds are invested with us.
  • Rollover Option – Option to automatically roll over your investment so you don’t miss out on earning interest or future investment opportunities.

There are many ways to start investing in mortgage notes (more on that below). All investments carry some form of risk, so make sure you understand the risk factor of your notes and investments.

Different Kinds of Mortgage Notes

When investing in mortgage notes, there are many different types of real estate, and so not all notes are the same. From land, mobile, rentals, and flips, properties can vary greatly, depending on your investing goals you may find different types of notes work best for you!

Mortgage loans can be broken down into several sub-categories:

  • Secured
  • Unsecured
  • Private loan
  • Institutional loan

These terms are used to identify the type of mortgages tied to properties. Secured mortgages have tangible assets tied to the loan, such as the real estate property itself. Unsecured loans are not tied to a particular asset. Additionally, Depending on who you purchase the loan from may qualify it as a private loan (from a hard money lender, or private money lender) or a credit union or bank.

Loans can also come in different positions: 

  • First Position
  • Second Position Loans

As FOOL puts it: “The lien position categorizes the position of the lender’s claim on the asset. Ultimately, it determines which lenders get paid first if something goes wrong.”

The first position is highly sought after, as it assures that if the loan forecloses, that they will be paid first. Any other position may not be guaranteed to receive payment. While second mortgages are fairly uncommon, some still exist, like a HELOC loan. Knowing these common terms is crucial to navigating what notes to invest in.

What You Need To Know Before Investing In Mortgage Notes

Not all mortgage notes are created equal. Before you start investing in notes, make sure you know how to identify the right notes for your investments.

Distressed Pro Outlines the Important Questions you need to ask before investing in mortgage notes. These questions are important as they can help you identify the types of notes or lenders you may want to invest in!

Questions to Ask Before You Invest In Real Estate Notes
  • Are you looking for cash flow and do you have money to invest?
  • Looking to own the collateral (the property) at a discount?
  • Are you raising private money?
  • If you’ve raised money then what kinds of returns are your investors looking for?
  • If you haven’t yet raised money then how will your business plan define the notes that you’re looking for?
  • Is there an asset type, location, or process where you have a depth of knowledge or an unfair advantage?

Depending on your investment plan, you will find different liens, and different note positions better suit your goals!

How To Invest In Mortgage Notes

Buying real estate notes is not nearly as complicated as one may think. You can choose to use an IRA, investment capital, or even personal funds to purchase your note.

For many lenders, they will need to see an income statement, and you will have to either purchase the note in full or may purchase the note in installments (depending on their lender.) As real estate notes are sold at a discount, they possibly cost you less than what the bank loaned for!

Investing in mortgage notes is a simple process and can easily be broken down into 4 steps.

How To Invest In Mortgage Notes

  1. Find Real Estate Notes to Buy
  2. Note Buying Due Diligence
  3. Making an Offer to Buy Notes
  4. Closing on Your Note

Hard money lenders often make it easy to find and real estate notes to buy, and apply to purchase notes. Often buying mortgage notes can be as easy as contacting several lenders on their notes for sale. Once you find a lender who has notes available, due diligence is mandatory to find the right investment.

Think realty refers to this as the 3 P’s of Investing In Notes.
  1. The Paper: The paper means the documents; the note, mortgage (or trust deed or contract for deed), property settlement statement, payment history, etc.
  2. The Property: Get a current appraisal of the property paid for by the note seller; if it is an investment property ask to see the current status and the investment plans. Make sure that the property is in good shape to possibly sell if it forecloses.
  3. The Payor: You will never contact the payor, however, you should be able to get the following from the current lender. Payment status, if they are currently on their loan, employment, and credit score if necessary.

If you are happy with the property, and payor, you can offer to purchase a note. The lender will give you terms and details of who will service the loan, how you will be paid, and how often. (You can see how easy real estate note investing is here)

Always use a title service and make sure that the details and conditions are well understood and agreed upon to close on your note!


A recent report from Attom Data Insights stated, “The dollar amount of purchase loans jumped to $336.3 billion in the third quarter of 2020, a 35 percent increase from the prior quarter and a 36 percent increase from a year ago.”

As the real estate industry continues to grow, knowing how to invest in mortgage notes is a great way to build your passive income, and profit from real estate. With low-risk and high returns, mortgage note investing is a great way to build passive income and get involved in one of the hottest and fastest-growing industries with minimal maintenance.

Ready to start investing in mortgage notes, apply today to learn more!

Prime Plus Mortgages

Prime Plus Mortgages is a licensed hard money lender. We specialize in hard money loans, bridge loans, fix and flip loans, home rehab loans, for developers, property flippers and buy-and-hold strategists. HML programs make private money available for small to medium scale projects.