You may feel that you need a lot of capital before you can start investing in mortgage notes.  However, it’s possible to use someone else’s money to make the deal go through and still get your profits!

Mortgage notes are a great way to invest in property and make an even higher return that with other types of property investment.  Plus, there is a way you can buy a homeowner mortgage using someone else’s money.

How to Find the Money
When you are working as a property invester with a mortgage owner to buy their mortgage from them, you’ll have the owner sign a “Note Purchase Agreement” to lock them into selling you the mortgage to a property for a certain amount of money. 

In this note purchase agreement, make sure that you include a certain period of time for due diligence.  This is to allow you to get your trait report and head down to the court house to check for any other liens on the property.  Make sure that your due diligence period is between 45-60 days to give you plenty of time.

While you are carrying out due diligence, you will also be looking for another real estate investor to give you cash to buy that mortgage note.  There are plenty of places to find investors, one mortgage investor in particular goes to her local real estate investing club.  Here she gets a chance to present potential mortgage note purchase deals and get investors. 

So, you attend your local club and meet a real estate investor who is looking for a 14% percent return on her investment. 

Quick Tip:  The investment and the return are inversely proportional.  The less money you invest, the more money you make on your return. 

How it Works Out
Say, you are buying someone’s $87,000 mortgage note for $70,000, that means you’ve just earned $17,000 profit in the long run.  That’s about a 24% return on your investment.  All you need to do to continue making money without spending your own is find another real estate investor who is looking to invest their money and get a slightly lower rate of return.

At the real estate club, you meet just such an investor.  She only wants a 14% return on her money investment for the property mortgage. 

So, you buy the mortgage note from the owner at $70,000, then turn around and sell it to the investor for $74,820.  That leaves about $4,000 in profits for you to pocket from your involvement in the deal.  The investor is going to make a profit too, because her mortgage note is worth $87,000 even though she only paid about $74,000.

By looking for your own investor for your mortgage note purchase you can still make money on the differences in percentage.  You’ve got to pay careful attention to the percent of return for yourself, the mortgage owner and your investor, but you can make money by setting up the sale!

A Seller Carry-Back Mortgage isn’t as scary as it sounds.  It’s a very simple way for you to buy a mortgage note from the individual mortgage note owner.

Buying mortgage notes isn’t all that hard as you’ve probably heard from some other property investors.  There are two basic ways to get into your first mortgage note.  One is to approach a bank and the other is to approach a homeowner about their own homeowner mortgage. 

Purchasing the homeowner mortgage note involves dealing with people who have owned their house free and clear and went to sell it but had some trouble getting anyone interested.  After a while the homeowner is approached by one interested buyer who came along with less than perfect credit.

How a Homeowner Mortgage Gets Started
The interested buyer couldn’t go get a bank loan, but he did have about $20,000 in cash saved up.  He offered to give the money as a down payment and offered to pay the homeowner the remaining price of the property, say $100,000 over the next ten years at 10% interest! 

That is a great deal and a great investment.  Most sellers take their profits and stick it in the bank, which even with the highest current interest usually only gets them about 3 or 4%.  By letting the buyer pay you directly at the higher interest rate for a mortgage, you’d be making more money!

So, the buyer moved in with his family and spent a couple years in the home making regular payments.  In two years, his mortgage to the homeowner mortgage owner is down to $87,000.   Suddenly, the mortgage owner realizes that he needs money now; in fact he needs about $70,000 to make another great investment.  This is where you come in with the Seller Carry-Back Mortgage plan. 

Buying the Homeowner Mortgage
You can approach that mortgage note owner by offering to give him a cash lump sum for the right to collect the remainder of the mortgage note.  The mortgage note owner says great and agrees to sell.  You pay him $70,000 for the rights to his mortgage note that he first created with the home buyer. 

The mortgage owner takes his $70,000 and goes out to invest in that next hot deal and you, the real estate investor gets to collect the rest of the mortgage.  The mortgage note owner is no longer involved with the property and never seen from again. 

The buyer still keeps the same rates on his mortgage to you and continues to make the same payments towards his own house.  At the end of the remaining eight years on the mortgage the buyer owns his house outright and you have made a $17,000 profit on your investment of only $70,000.