Is it better to invest in real estate or mortgage notes or both?

The one constant of the current real estate market is its volatility. Years after the housing bubble burst and the Recession having ended, the market has not calmed down.

The collapse of the housing market in 2007 was the defining feature of the last two decades when it comes to real estate. Millions of homeowners were forced to default on their mortgages and many of them couldn’t refinance or keep their homes. The housing market was glutted with pre-owned homes that were considerably less expensive than buying or building a new home.

Although the market has stabilized, somewhat since then, at the end of 2014, there were still more than 7 million homeowners who were underwater on their mortgage. This amounts to well over 10 percent of all homeowners with a mortgage. This situation, as bad as it is, can be an opportunity for investors in real estate notes.

The difference between managing real estate and mortgage notes

There are a lot of similarities in investing in real estate and investing in mortgage notes. You, as the investor, are responsible for evaluating the collateral and working with investment companies. You need to do your own due diligence to make sure the property is valuable and worth owning or holding the mortgage note on.

The differences, however, make investing in mortgage notes very attractive to current investors. The primary difference is that you don’t own the property. If you own the mortgage note on the property and the homeowner violates the terms of the agreement then you can file a lien against the property. You won’t own the property unless it is foreclosed on and, if you are the primary lien holder, then you acquire the title.

Taking the passive route

If you own physical real estate, you are responsible for it and you have tenants. If your tenants violate the lease then you can take them to court and have them evicted. Since you don’t own the property in question, the homeowner is not a tenant and you don’t have rights to the property as long as the agreement is not violated.

Owning real estate is all about managing your investment through the people who live there. That compares to managing your investment through collecting what is owed to you in owning mortgage notes.

Owning a mortgage note is also more passive than owning property. You are only responsible for collecting the payment, paying the taxes and (perhaps) ensuring that the owner carries insurance. Homeowners don’t call their mortgage companies up in the middle of the night to fix a broken furnace or replace a balky water heater.

Financing for mortgage notes

Another advantage of investing in mortgage notes versus real estate is the financing options. All of the traditional real estate investment financing can be done with mortgage notes and there are a number of other options added to them.

Mortgage notes, although linked to a specific property, are not title to it. This allows the investor to take advantage of situations by using Other People’s Money or forming LLCs to acquire notes. Compared to investing in real estate, owning mortgage notes is simpler and less risky.

The option to refinance a mortgage, either through a bank or by using your own funds, is also a viable option for owners of mortgage notes. If the homeowner wants to remortgage, you can use seller carry-back (basically, where you act as the bank to extend or modify an existing mortgage or write a completely new own) to increase or decrease your cash flow from the property.

Final thoughts

Real estate notes are one more option in an investor’s tool box. There are times that owning a property outright can be beneficial and just as many times that being the lien holder is better for you. Until the volatility that has characterized housing markets for the last decade finally ends, protecting your assets against the market is a valid and viable strategy. In that atmosphere, owning the mortgage note can be much better than owning the property.

Prior to taking part in real estate or in mortgage notes, the savvy investor will want to get expert advice. Troy Fullwood of Pinnacle Investments has over 20 years of experience as a real estate investor.

Mortgages as Investments

Every investment opportunity comes with a risk involved and the aim of any investor is to reduce the risk. One way of doing so is by investing in mortgage notes. The basic definition of a mortgage note is a promissory note which is secured by the specified mortgage loan. Simply put, notes refer to written […]

Continue reading...

How to Invest Effectively in Non-Performing Notes

Buying non-performing notes or loans is an excellent way to invest in real estate. Non-performing loans are the type of loans which the borrower is behind on or has ceased making payments. Previously, banks would foreclosure on these kinds of loans and sell the property attached to the loan, but banks are currently selling these […]

Continue reading...

Non-Performing Notes

A real estate note is a promissory note on to repay a specified sum of money plus interest on a mortgage loan. Mortgage notes are a good investment opportunities offering them payment over a period of time. They are traded on the secondary market quoted as a percentage figure. When you own a note, you […]

Continue reading...

Making Investments in the Real Estate Industry

Investment is a really hot topic nowadays. People have the money and the temptation to spend it all is just too much. This is why more and more individuals are turning to make investments in whatever they can find easy to invest in. Luckily for the world, investing is one of the easiest things you […]

Continue reading...

Five Reasons Real Estate is a Good Investment Opportunity

Since the end of the Second World War, man has sunk his efforts in an endless effort to secure more money and gain more profitability. This implies that any viable investment opportunity is worth pursuing, putting in mind that fluctuation may chew away the benefits over time. One of the major upcoming investment industries is […]

Continue reading...

Buying Mortgage Notes for Better Investment Returns

With many people depending on the savings account as a pillow for their retirement structure, more and more people are usually left in turmoil. This is for the simple reason that the returns do not come out as planned, thus the dreams dreamt are often shuttered making more people depend more on the social security. […]

Continue reading...

5 Reasons Owners Offer Seller Financing

Why would a seller allow a buyer to make payments over time for the purchase of property? Wouldn’t the seller rather get paid now and require the buyer to obtain a bank loan? Here are 5 reasons property owners offer seller financing: 1. Reduced Marketing Times What is the first thing a real estate agent […]

Continue reading...

Safekeeping the Original Mortgage Note

Can you easily locate the original mortgage note? This important legal document should be kept in a safe place, and here is why! The promissory note is a promise to pay or IOU from the property buyer. It spells out the amount due and terms of repayment. In legal jargon it is known as a […]

Continue reading...

Avoid Three Seller Financing Mistakes

Would you rather have $97,000 to sell your $100,000 note or only $80,000? The difference in usually comes down to the big three. Here’s the three biggest mistakes note sellers make and how to avoid flushing money down the drain. Mistake #1 – Failing to Check Credit The payer’s credit report lets you know how […]

Continue reading...

How We Can Help!

Receiving payments on property sold?

Tired of waiting for your money?

Worried the buyer will stop paying?

Let Us Help...

We Buy Mortgage Note, Trust Deeds, and Contracts Nationwide!

Accepting payments on the sale of real estate might have made sense at the time, but circumstances change.

Many sellers discover they would now prefer cash today rather than the small amount that trickles in each month.

Here are just a few reasons people have sold all or part of their seller financed mortgage notes for cash:

  • Retirement
  • Taxes
  • Investment Opportunity
  • Expensive Medical Care
  • Vacation
  • College Tuition
  • Unexpected Financial Changes
  • Peace of Mind – no more worrying if the buyer is going to make late payments or having to foreclose
  • Accounting headaches, IRS regulations, paperwork hassles and the list goes on…

The only way to decide what is best for your situation is to know the options available.

Discover Your Options - Request A Free Note Analysis!