3 Signs of a Great Mortgage Note Investment

Written by: Catherine Way | Published June 27, 2022

Investing in real estate is a great way to not only diversify your portfolio but build passive income and see high returns. While house flipping or becoming a landlord may be too time-consuming, you can easily invest in real estate in a hands-free way.

That is where mortgage note investing comes in, making for a fast and easy way to invest in real estate with the headache of property management.

When a property is purchased using a loan, the lender has the buyer sign a promissory note, which is a promise to repay the debt and outline the terms and conditions of the loan. Lenders and banks may sell these notes to help increase their equity and cash flow. Note buyers profit from the interest collected from these loans. Some mortgage note sellers even offer servicing so that note buyers do not need to interact with the buyers.

Note investing can be a great way to began investing in real estate that is realtivaley low-risk. If you are ready to start note investing, make sure you know how to pick profitable note investments and the signs of a good investment.

Here are 3 signs of a great mortgage note investment:

Sign 1: The Property

No matter what your real estate investment type, having a property with value is a top priority for any investor. However there are many ways a real estate property can be valuable. Some of the ways you can determine the value of a property is in current value or market price, potential future value (after repair value) appreciation, or even equity potential.

Some ways to determine the value of real estate properties are:

  • Property Photos: Updated property photos may not have numbers attached, but can help you see how well a property is being maintinained. Additionally you can use this to determine what the current sales price of a property may be.
  • Sales Price: If you are buying a mortgage note you already know what the sales price, or the loan value of aproperty is. You can use this information with comparable properties or even check the local market to see how well this property and neighborhood is appreciating in value.
  • Comparable Properties: Comparable properties, or Comps, are often used when buying and selling properties to determine the value of a home. By seeing what properties of similar style, types are currently selling for you can determine how well a property may do in the need to sell, and get a idea of how well your property will stack up.
  • After Repair Value: After repair value (usually shortened to ARV) refers to a property’s estimated market value after repairs and renovations have been completed. This is especially useful if you are investing in flipped mortgage notes.

If a property is poorly maintained, in need of many high cost repairs(if not a house flipper note), or in a bad local market it may not be a good investment. Homes in good condition in need of some minor repairs and have a  high value will always be a smart investment for a note investor.

There are many way to determine the value of real estate properties. Therefore knowing how to spot a property in good condition with high value is a important for note investors.

Sign 2: The Paper

For mortgage note investors having a valuable property, and the right papers in order are crucial for a successful investment. A sign of a great mortgage note investment is clean paper trail.

Mortgages loans have many classifications and categories, and for a safer investment, it’s important to ensure your investment checks the right boxes.

Loans Positions simply determine the order in which a debt is repaid (in event of a foreclosure or bankruptcy for example.) The first position is highly sought after, as it assures that if the loan forecloses, 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.

Mortgage Note Sub-categories break down even further to describe the security and lender type of loan.

  • Secured: Loans that are secured are tied to an asset, such as the real estate property or the borrower.
  • Unsecured: Unsecured loans are not tied to an asset, and generally are second-position loans.
  • Private loan: This loan type is offered by hard money lenders or even private money lenders who are accredited smaller lenders.
  • Institutional loan: This describes a more traditional loan that a bank or credit union may offer.

When you are mortgage note investing, it is important that you find a note in the position and category that works best for your investment style.  Other essential documentation is the trust deed itself, settlement paperwork, payment history, and loan documentation. A sign of a great mortgage note investment will be easy to find and read the documentation of the mortgage categories, loan position, payment history, and all the paperwork for the property.

Sign 3: Purchasing and Payouts

Real estate notes investing is a great way to not only invest in real estate but build passive income. Another sign of a great mortgage note investing is the process of purchasing and receiving payments from your investments.

There are many ways you can purchase a real estate investment, such as cash, crowdfunding, and even IRAs.  Most mortgage note sellers accept cash and IRA purchases and offer to serve for mortgage payments, meaning you receive monthly interest payouts for your investment in your account.

Some of the benefits of investing in mortgage notes are:

  • 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.

A sign of a great investment is working with a great lender. Lenders who can seamlessly find you a great note will ensure you get the right note for your needs.  Most mortgage note investments can be completed in as little as one day to one week, depending on your investment preference, payments, and the lender you work with,


Mortgage note investing is a great way to start investing in real estate, build passive income, and diversify your portfolio. Keep your eyes peeled for the signs of great mortgage note investments, and make sure you do your research before you invest!

3 Signs of a Great Mortgage Note Investment

  1. The Property: Properties with a good loan to value ratio are more likely to be performing notes. Find current photos, and research the local market for properties to ensure your get the value you need before you invest.
  2. The Paper: Clean titles and loan documentation is a must when real estate note investing. Ideal loans are secured first-position deeds of trust!
  3. Purchasing and Payouts: A great lender will ensure that the buying and payout process is as seamless and easy as possible for you to invest.

Are you going to invest in mortgage notes?

About the Author: Catherine Way is the Marketing Manager at Prime Plus Mortgages: Hard Money Loans. She has created content for the following industries: Real Estate, Mortgage, Finance, Business, Real Estate Investing, and many more.

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