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Where to Find Performing Notes for Sale in 2023

Performing mortgage notes can be a great tool to help you earn more passive monthly income from your investments. In this article you'll learn exactly where to find them right now in 2023...

David Garner
David Garner
Published On: November 30th, 2020

Performing Notes for Sale in 2023

Mortgage notes, real estate notes, call them what you will… Debt can be a great investment.

Note investors and lenders collect regular monthly payments from borrowers, while your investment is secured against physical real estate. What could be better, right?!

Certainly if you’re looking for a more passive monthly income from your investments, good quality performing mortgage notes should be atop your investing agenda!

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Contents:

Just a quick word first… Remember, I’m not here to give you personal investing advice. What’s good for the goose might be poison for the gander.

You should only make investing decisions based on your own personal goals and circumstances. And never invest more in any one asset that you’re not prepared to lose.

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An Introduction to Performing Notes

Performing notes are a fantastic tool to add more monthly income to your investment portfolio or retirement account.

These types of real estate notes pay a much better rate of return than many other interest-bearing investments, and they are backed by a physical asset in the form of real estate.

But one of the best things about mortgage notes is that you can often purchase notes at a discount to the unpaid balance – effectively amplifying your ROI.

Here’s how that works…

Imagine someone borrowed $50,000 to buy a house, and you purchase that debt (the note) from the originator for $45,000.

Now, not only are you getting paid interest on $50,000, but you also get repaid $50,o00 in capital too!

Imagine trying to do that with stocks, bonds or a money market account… you can’t. No-one is buying Microsoft shares at a discount, right?

So, this all sounds great in theory, but where does one find performing mortgage notes to buy?

Performing notes generate monthly income

Well, you won’t be on this journey for long before you realise that it’s highly unlikely for institutional lenders to sell you their performing notes in anything less than very large quantities.

While some banks and credit unions do sell the notes they originate to private investors, the vast majority of those notes tend to be non-performing mortgages (where the borrower is in serious default).

While this type on non-performing debt can be a great investment in its own right, that’s not what we’re looking for today.

Today, we want to find notes that are consistently and reliably paying a good rate of interest every month.

That being the case, you have two options;

  1. Originating your own loans,
  2. Buying performing notes from other note investors.

These are both reasonable strategies, and I’ve done both myself. So, let’s take a look at each and give you some options to explore.

Related: Performing Notes vs Non Performing Notes – Which is the Better Investment?

Originating Performing Notes

Before we even buying performing mortgage notes, you should consider the possibility of originating your own notes.

There are some distinct advantages to lending your own money…

For example, you get to choose your borrower, and you get to set your own terms such as the interest rate, amortization, and length of the loan.

If you want to originate your own performing mortgage notes, there are a couple of ways to go about it.

  1. Lending money to real estate investors (known as hard money or private money lending),
  2. Selling a property that you own with seller-financing.

Let’s address both of these strategies here…

Private Money Lending

Private money lending is the lifeblood of real estate investing.

Whether it is hard money from a professional lender, or a private money loan from a private investor, real estate investors rely on access to quick cash to close deals fast.

This means private lending is a also great way to originate your own performing mortgage notes.

In theory, it’s pretty simple…

You loan money to a real estate investor who want to buy a property, either to flip, or to hold as a rental property.

These are usually relatively short terms loans of anywhere between 6 to 60 months.

Your investment is secured against the property, and the borrower usually pays you back by selling the house (as in flips), or refinancing (as in rental properties).

Obviously, there’s a lot more to it than that, but the technical details are beyond the scope of this article. For now, here are some basic pointers…

The first thing you need to do is find a credible borrower with a good deal.

You also need to know how to assess risk, and what loan terms to offer.

Finally, you need to understand how to manage the relationship with your borrower once you have made the loan and own the note.

Private lending is a great way to invest passively in real estate

If you think private money lending might be for you, a great place to start looking for credible borrowers and deals is your local REIA meet up.

Many these meetings are now hosted online, so they’re pretty easy to find and attend. You will find no shortage of potential borrowers there.

You can also purchase private lending notes from established hard money and private money lenders.

Finally, you can partner with other more experienced lenders who will choose and vet the deals on your behalf.

However you choose to go about it, if you do decide to explore private money lending, the first thing you should do is educate yourself.

While it sounds simple, there’s plenty that can go awry, so read, watch and learn as much as possible, and try and find experienced lenders who will share their knowledge and experience.

See Private Lending Notes for Sale: Check Out All The Pre-Vetted Private Lending Notes for Sale in our Private Lender Portal

Seller Financed Performing Notes

Another option for originating performing mortgage notes is to create seller financed notes.

Offering seller financing is a very common strategy for real estate investors who want to sell a property, but their buyer may not be able to secure a traditional mortgage right away.

This is something I do all the time. Typically, I take a deposit from a buyer and carry a note for the balance. I can then keep the note, borrow against it, or sell it (or part of it) to another investor.

Creating or buying seller financed mortgage notes is a great way to add passive income to your retirement account or investment portfolio

Here’s what a typical seller finance deal might look like…

  1. I purchase a piece of real estate for $100,000 all-in.
  2. I spend $50,000 on rehab, and the newly completed property appraises at $200,000.
  3. I have a buyer that wants to put down $30,000, and I carry a note for the remaining $170,000.
  4. Now I have $30,000 in cash, and a mortgage note with a face value of $170,000.
  5. After the buyer (now borrower) has made some payments, the note is considered to be ‘seasoned’. That means it has a good payment history and is worth more to a potential note investor.
  6. I sell the performing note to a note investor for $150,000.
  7. Now I have $180,000 in cash from my original investment of $150,000. That’s a clear $30,000 profit from one deal.
  8. The note investor has a performing mortgage note with a face value of $170,000 for which they paid $150,000.

Of course, if your goal is to own performing mortgage notes, you wouldn’t sell.

In that case you’d have $30,000 cash and a performing mortgage note for $170,000.

See Notes for Sale: Check Out All The Performing Notes for Sale in our Investor Portal

Buying Performing Notes

If originating your own mortgage notes isn’t for you, the next best option is to simply buy one from another investor.

The questions are; what type of note to buy? how much to pay for it? and where to find one for sale in the first place?

Well, you basically have two main options to consider as follows:

  1. Buy a performing or re-performing note from another investor,
  2. Buy a non-performing note and try and get the borrower paying (performing).

There are a number of online portals that list mortgage notes for sale, the market leader of which is Paperstac.

This is an online marketplace where investors can list the mortgage notes they want to sell, and buyers and bid, or negotiate with sellers, perform their due diligence, and even close on the purchase of a note through a separate escrow closing company.

There are other ways to find mortgage notes for sale. I know many note investors that advertise locally and online for prospective note sellers.

Related: My Ultimate List of Sources to Find Mortgage Notes For Sale Today

Some Useful Resources

So that concludes the three most common types of performing notes you will find for sale on the open market. In order to get you on your way, here are some useful resources that will help you on your own note investing journey:

Some More Note Investing Articles:

Some External Note Investing Resources:

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