Wholesaling Mortgage Notes: Fad or Best Strategy for the Future?

Investing in mortgage notes has become incredibly popular recently, but is it just a fad or could it be an essential long term and highly profitable strategy from here on out?

Investing in wholesaling notes isn’t really new, even though some have only recently caught onto it. Many real estate and mortgage pros began flipping loan notes a few years ago as a side business, but often got nowhere due to being poorly educated about the process. However, others have been acquiring home loan notes for years; even before the bubble bursting and the foreclosure crisis.

The question is whether wholesaling notes is really for you, and is it a strategy that will last?

Mortgage Notes: The Most Misunderstood Real Estate Investment

Few really, truly get what note investing is all about. Yes, it can offer steady income -often with far above market yields – but that is really only the tip of the iceberg of the potential profits, especially for those wholesalers.

Loan notes do throw off regular income from monthly payments, but they can also be cashed in for quick and sizable lump sums, or can even offer a hybrid combination of both.

Plus, with so many non-performing home loans out there today, this paper can also be a short cut to acquiring underlying real estate at sizable discounts, as well as an alternative to spending money on marketing or fighting over short sales and bank owned REOs.

The Benefits of Wholesaling Notes for Quick Cash

• Provides a way to jump ahead of other investors to acquire distressed properties
• Less competition means potentially bigger discounts and profit spreads
• Fewer extra costs that dig into net profit
• Does not rely on obtaining financing and closings, resulting in shorter cash cycle
• Easier management
• Offers multiple exit strategies

2 Paths to Note Investing

There are two main ways to get started with notes…

1. Buying Notes

Notes can be purchased from banks, credit unions and other financial firms, or even from other investors who create them. These aren’t offered up in listings like residential real estate, but there are plenty out there to be had by contacting these sources directly or advertising yourself as a note buyer.

2. Creating Mortgage Notes

Investors can also create their own mortgage notes when they offer seller financing on homes. These loans can be in first or second position and investors can use their own cash or that of private lenders. The potential for conjuring up all types of terms is there, but it is essential to understand what makes an attractive and salable note before creating them or face being stuck with paper no one else wants.

However, before investors take off on this tangent, it is important to get educated on the process of wholesaling notes, get a good understanding of what types of notes are in demand right now, and seriously ask whether this is just going to be a distraction from regular business or will truly deliver more profits and an improved ROI.

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