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4 Best Ways to Buy Mortgage Notes in 2022

Want to add more monthly income to your investment portfolio or retirement account in 2022/3? Then you should definitely consider adding real estate notes to your investment hitlist. Here are 4 ways anyone can invest in mortgage notes right now

David Garner
David Garner
Published On: August 8th, 2022

4 Ways to Buy Mortgage Notes Right Now

This week, I was asked by an investor where to invest 100k right now for income.

When I sat down and thought about it, the answer was less clear than one might have hoped.

With interest rates on the rise, you would be forgiven for thinking that it might not be too challenging to find reasonable interest-bearing investments, right?

Sadly, that doesn’t seem to be the case.

While the cost of borrowing has gone up at the fastest pace for a long, long time, savings rates haven’t exactly followed suit.

While mortgage rates have shot up from 2.75% to almost 6%, the best rate currently available on a 1-year CD is still just 2.75%.

While interest rates for borrowers are up more than 100% this year already, rates for savers have not kept up as 1-yr CDs pay just 2.7%

Financial markets don’t offer much of a safe haven, either.

Where one might usually happily rely on our good old monthly dividend stock list, today’s volatility and potential looming recession don’t make for comfortable investing.

And… with inflation now really beating down the real-world value of our cash and assets, it’s never been more important to secure the best possible rate of return in order to preserve and grow our wealth and secure our financial future.

As a result, many investors are looking outside of traditional assets like stocks and bonds, and seeking out superior returns elsewhere.

And that, dear Reader, brings us nicely to mortgage notes… the investment that can pay yields above 9% p.a., with the capital security of physical brocks and mortar.

In this article, you’re going to learn the best 4 ways to easily add the reliable monthly income and capital security of asset-backed real estate notes to your portfolio in 2022 and beyond.

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1. Online Note Trading Platforms

Not more than a few years ago it was fairly difficult for private investors to find quality sources of mortgage notes for sale.

Short of trying to build relationships with banks and credit unions, options for private investors were limited to a few glitchy and unreliable listings websites, and no end of ‘brokers’ offering uneducated newbies poor quality paper at shocking premiums.

Today, with the wonder of modern technology and some entrepreneurial-minded folk, things are much easier.

There are a number of online platforms where sellers list non performing notes for sale - but beware of joker brokers selling trash

There are now a number of online platforms where private and institutional investors can list their notes for sale. Note buyers and can browse, offer, conduct due diligence, and even close on a note purchase, too.

I recently interviewed Brett Burky, Co-Founder of note trading platform Paperstac for our Investor Podcast. Their website and business is growing from strength to strength as more and more private investors turn to real estate notes as their investment of choice.

Related: Performing Notes vs Non Performing Notes | Which is the Best Investment?

2. Mortgage Note Funds

If you’re not keen on buying a mortgage note directly, then you might consider passing the donkey work over to a professional mortgage note fund manager.

There are lots of private note funds around, mostly (but not exclusively) available to Accredited investors.

These small private investment funds are usually set up by seasoned note investors in order to partner with ‘passive’ investors, and use their money to scale their own note investing and trading operation.

note funds could be a great option for passive investors that want to add monthly income from mortgage note investing to their portfolio

I spoke with professional note investor Jamie Bateman, Founder of Labrador Lending, LLC, and Manager of the Integrity Income Fund which offers passive investors a preferred return of between 8.0% and 8.5% p.a., by investing in performing notes.

The fund is open to Accredited investors with a minimum investment of $25,000 and a 1-year lock up period. Here’s what Jamie had to say about investor appetite:

Our capital raise has been going great. We sold out of our preferred return rates in a matter of weeks, and we’re still taking further investments from accredited investors. We’re now focussing on acquiring performing notes that fit our income model.

There are a ton of different fund structures, investment terms, and underlying investment strategies to consider, so if you’re choosing to invest in notes via this professionally-managed route, make sure you do your due diligence of the fund, and in particular the fund manager.

Related: Non Performing Notes – Everything You Need To Know

3. Private Money Lending

If you’d prefer to take a little more control of the real estate notes you hold in your portfolio, you might consider originating your own with private money lending.

In the real estate world, investor lend and borrow between each other all the time.

For the active investor, using private capital is often much more convenient and faster than traditional bank financing, and short term lending terms are often much more appropriate for flip type projects.

Anyone can be a private lender in the United States, and most private lenders are looking for more passive investments

For the passive investor (lender), loaning money to a real estate investor allows them to earn a great rate of interest, without any of the hassles of real estate ownership, but still holding a legal charge of the real estate as security for the investment.

I’ve built up a rental portfolio of over 100 properties using private money, and I’ve also loaned my own capital and represented investors through our Private Lending Program.

If it’s down right, private money lending offers a pretty great combination of risk-return for both borrower and lender.

Pro Tip: Join 5,000+ investors on my Priority Investor email list and see new private lending deals in your inbox every Thursday

4. Buying Seller Finance Notes

If you don’t want to buy a note on an online platform, invest in a note fund, or originate your own notes with private money lending, then you can always purchase seller finance notes from real estate investors and other home sellers.

Seller financing is a method that home sellers (usually real estate investors) use to sell their property to a buyer that might not be able to secure a mortgage.

The buyer will give the seller some cash as a deposit, and the seller with carry a note for the difference.

Often, the seller with then sell the note to pull their capital back out of the deal.

Buying seller financed mortgage notes in 2021

Seller finance notes can a be a great source of regular monthly income provided the borrower and the real estate are good quality.

But it’s not just RE investors that originate seller finance notes. often folk will sell their own home, or a second home or investment property using seller finance.

If you want to find seller finance notes for sale, you’ll need to start networking and/or marketing, and a great way to do that is to show up to your local Real Estate Investment Association meetup and start meeting the folk that are mostly likely to originate these kinds of deals.

Related: Monthly Income Investments – The Complete List of Investments That Pay Monthly Income

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