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Earn Passive Income Using Real Estate Notes

Income from a performing notes occurs when you either:

Buy a performing note from an institution, hedge fund or bank.

Buy a performing seller finance note from an individual or LLC.

Buy a non-performing note and get it re-performing.

Sell a house with owner financing or contract for deed.

Pitcher of lemonade
Make Lemonade Out Of Lemons

Here is a simple example of how you can buy a non-performing mortgage note and make lemonade out of lemons. Key takeaway is that the borrower (i.e. homeowner) wins since in this example their UPB (unpaid principal balance) and payment were both reduced at the same time shortening the time to payoff by 60 months!

Mortgage note loan modification example
Safe - Secured By Real Estate

You want to make sure the value of the underlying asset (like a single family house) is sufficient to ensure that you get your money back in the event that the borrower stops paying. In addition, the underwriting process (i.e. verifying the details) is super important when buying mortgage notes. You want to understand what other liens are on the property, taxes owed, bankruptcy status, collateral docs, foreclosure timeline, debtors past payment history, note rate, UPB, maturity dates, etc.

Mortgage note underwriting process steps
Steel padlock
Multiple Exit Strategies and Income Streams

Performing notes produce a consistent income with no hassles...mailbox money!  You just collect payment and when ready to get a big payday you can sell a partial note (more advanced strategy) or sell the entire note to an investor.

Non-performing notes often can be modified to fit the borrowers ability to pay and keep them in the house. For those borrowers who no longer wish to keep the house, options like deed-in-lieu or short sale can be a win-win for debtor and creditor. If all else fails, then foreclosure is another option to get the house back and then either rent, sell with owner financing or sell outright.

Key exit strategies for non-performing mortgage notes
Exit doors in building
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