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If you’re looking for one of the best ways to build passive income and wealth from real estate investing in 2021 is to invest in mortgage notes.

Investing in mortgage notes is an ideal way to create passive income from real estate because it’s an alternative to traditional real estate acquisitions because it’s ‘hands-off income’ and a way to invest in real estate from anywhere in the world.

In this article, I will break down some important things you must know about mortgage note investing so that you can get started with building a mortgage note portfolio without having to do all of the traditional work that comes from real estate investing.

Passive Income Strategies

Why Invest In Mortgage Notes?

If you’ve invested in rental properties, or know someone who has invested in rentals in the past, you know that the traditional way of owning real estate means having tenants and dealing with rent collection, customer service, marketing, and maintenance.

When an investor purchases mortgage notes, they can eliminate all of the traditional tasks that come with owning real estate since this method of passive income real estate investing is ‘hands-off’ and doesn’t require any personal involvement from the investor.


Earn Passive Income From Mortgage Notes

When a home buyer takes out a mortgage on a home, they will be required by their lending institution to sign a mortgage note.

This contract specifies that the borrower’s mortgage is going to be secured by real estate and it also spells out the details of the mortgage including:

  • The total amount of the mortgage loan
  • Down payment amount
  • Types of payments required (a month or bimonthly)
  • Interest rate, including if it’s a fixed-rate or adjustable interest rate
  • Prepayment penalties

A typical mortgage note often comes with a promissory note. This document outlines the terms of the mortgage or the borrowed amount that must be paid back to the lender.

Mortgage notes are sold by banks every year to free up cash flow. Once purchased, the buyer essentially takes on the role of the lender and they now can earn passive income every time the homeowner makes their monthly mortgage payment that must include their principal and interest.

Top Multifamily Markets For 2020

Learn More About Earning Passive Income From Mortgage Notes

In real estate investing, most investors typically earn passive income from real estate by investing single-family and multifamily or they invest in properties to rehab and flip.

What’s ideal about mortgage notes is that they enable investors to still invest in real estate but they don’t have to do any work to manage the property.

Since an investor who buys a mortgage note is technically stepping into the role of the bank, they don’t hold or manage the property themselves. They hold the mortgage note and will collect the borrower’s principal and interest payment directly from the homeowner.

Performing Vs. Non-Performing Mortgage Notes

Thankfully, there are a wide variety of opportunities for investing in mortgage notes including performing and non-performing mortgage notes.

Performing Mortgage Notes – These types of mortgage notes are ideal because a performing mortgage note means that the borrower has a record of consistent payments and their loan is current. With this type of real estate investment, the investor can have confidence that they are going to earn consistent passive income from the note monthly.

Non-Performing Notes – Investing in a non-performing note means that the borrower has not paid their debt on time, or they are behind on their payments, and this is the reason why the debt is classified as being non-performing.

Some banks may be willing to part with non-performing notes due to the risk involved with owning them and what’s even more ideal is that some banks may be willing to part with non-performing notes at discounts.

Investors who have experience with collections or foreclosures may want to consider investing in non-performing notes but it’s always a smart idea to consider the work involved that comes with managing a non-performing note before making the jump to investing in it.

Non-performing notes aren’t exactly a way to earn passive income from real estate investing but if the problems with the non-performing note can be ironed out, these notes may earn passive income for the investor who purchases them.

Can you lose money investing in mortgage notes? The answer to this question is yes, and no.

You can lose money if you invest blindly and don’t do any due diligence but if you’re willing to do the work required to research the property, and its location before investing, you will be able to make a smart investment every time.

Real Estate Asset Manager

Where To Buy Mortgage Notes

In today’s world, the internet makes it easy to invest in mortgage notes. Investors can buy mortgage notes from private individuals or institutional lenders.

With the state of the economy, we may likely see more lenders selling mortgage notes over the next 12-24 months so now could be a good time to buy and work with an institutional lender in general because traditional lenders issue many loans and provides investors with opportunity.

multifamily properties

Earn Passive Income From Multifamily Real Estate

Yes, mortgage notes are an excellent way to earn passive income in 2021 but investing in multifamily properties will always continue to be my favorite method for earning passive income.

Multifamily properties are ideal because we live in a nation of renters and more people want to live in multifamily properties than ever before since most apartment complexes are close to downtown areas, jobs, restaurants, and things to do.

If you’ve been interested in earning passive income from multifamily properties, I invite you to contact me.

Investing in multifamily properties with Trier Capital is even more ideal than investing in mortgage notes because we do all of the hard work for you including sourcing, acquiring, and managing multifamily properties.

For more information about the benefits of investing in multifamily properties, or to learn more about getting started with my company, I invite you to contact me at (630) 229-2383 or click here to connect with me online to learn more.

Erik Hatch

Erik is currently invested in projects in Florida, Texas and Kentucky totaling $79 Million. He is an accomplished leader who motivates and inspires action while at the same time, is grounded in business metrics and information that drives successful businesses.