You’re probably already aware that there are many different types of real estate investments that you can get into. Most of the people who are getting started with real estate investing will gravitate toward buying properties and renting them out or trying to flip homes. Some might even want to get into commercial real estate investment, but there are those who are interested in mortgage note investing. What is mortgage note investing and is this a viable investment option that you should be looking into?
Understanding Mortgage Notes
The first thing that you need to know is what a mortgage note is. Basically, this is a note that someone signs when they’re borrowing money to buy a house. The lender will make people sign a promissory note as well as a mortgage. The note itself is essentially just a promise to repay the debt that they have taken on.
These promissory notes aren’t usually recorded in the public record. This doesn’t mean that they aren’t enforceable by law, though. They give information about who borrowed money, the amount that is owed, the agreed-upon interest rate of the loan, the timeline for loan repayment, and what is supposed to happen if the borrower defaults on this loan. There are also different types of promissory notes such as secured, unsecured, private loans, and institutional loans.
Investing in Mortgage Notes
Investment in mortgage notes involves someone stepping in to buy out the debt of the mortgage note. Someone might offer to buy out the debt on a mortgage and this individual then steps into the shoes of the bank. Sometimes it is possible to buy a mortgage loan at a discount and get a good deal. You can also alter the terms of the loan to make it easier for the borrower to pay you back.
It’s possible to get a high return on your investment over time by investing in these mortgage notes. Some people are interested in finding agreements like this and you should know that banks buy and sell mortgage notes regularly. The idea is to try to find a mortgage note that has the potential to make you money. Many people use this to their advantage and manage to make mortgage notes a successful part of their real estate investment portfolios.