Property investing sounds like a great idea because you can make large returns on your money.  However, you can make the same profits with less effort when you buy mortgage notes instead.

Everyone thinks that buying mortgages is some complicated process reserved for the professional property investors that have been in the business for some 30 odd years.  However, the process of buying a mortgage note is easy and a great way to make profits.  You have the chance to get a great return on your investment without involving yourself in a lot of maintenance and effort with the bank. 

The great thing with owning mortgage notes is that you have all of the security of the real estate because if the homeowner doesn’t pay you, you can still foreclose and take the house back.  So, you’ll just end up back in the real estate game with that particular piece of property, but at least you got some payments on the property over the years.  On the other hand, as long as the homeowner pays you as agreed you don’t lift a finger, you just take the money to the bank. 

This is because when you own the mortgage note, you essentially become the bank.  Do you think the bank cares whether the homeowner keeps up the property they’ve mortgaged?  No, all they worry about is getting their monthly payments. 

As a mortgage note investor you don’t have to deal with The Three T’s.

• Tenants
• Termites
• Trash

When you become the bank, you’ll have a lot more free time.  It’s much easier to be the bank, than to be the property manager or the property owner trying to sell. 

It Takes Forever to Get My Profits!
True, you are waiting for monthly payments on the property and this may be the clincher for some property investors.  Rather than a lump sum profit you must wait for your profits over the term of the mortgage, which can be decades. 

However, if you’ve got the money to invest in several mortgage notes you’ll be able to live well and still make those profits on the monthly income you receive.

Most people worry about getting a mortgage.  They never bother with the process of creating a mortgage or what’s in it for the banks.  When you buy your first mortgage note you’ll become the bank and see why it’s good to be a mortgage note investor.

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!

There are lots of ways to invest your money.  Investing in the real estate market can be a great way to invest your money and even make money if you don’t have any capital!
You’ve probably heard a lot of people saying that the real estate market is a great way to make money and a great way to increase your returns.  Well, they are right. 

There are lots of opportunities in real estate for making profits, everything from flipping homes to buying defaulted mortgage notes and it’s all a consistent step-by-step process that’s simple to work once you know how. 

The average bank savings account makes you up to 6% interest if you are in one of the very high paying accounts.  The stock market deals in constantly fluctuating shares.  IRAs can’t be cashed in for years and they’re meant for your retirement anyway.  Real estate on the other hand, deals in property which is always there and mortgages which last for years.  Plus, you can work deals with average returns of 14-25% in profits. 

Cashing in on the pre-foreclosure market is an amazing way to make profits on your money, earn an income, or provide for your own retirement. 

One Woman’s Gain in Real Estate
Donna Bauer was a stay at home mom.  She made some money babysitting at a $1/hr per kid, but was really scrapping around for enough money to keep the family going about 20 years ago.  She could have gone out and gotten a job, but was determined to remain a stay at home mom.  So, she got into buying and selling real estate.

Three months later, she closed her first deal and earned over $5,000 and this was about twenty years ago.  So you can imagine how much more $5,000 was worth back then.  It was an amazing transition in her lifestyle.

To this day she’s making money in real estate and even teaching others how to do it for themselves.

You may feel that there are so many programs and real estate investors and real estate agents buying up the market that there isn’t any room left for you to get started.  However, foreclosures and pre-foreclosures come up in the market every single day.  This is a rotating market so there are always real estate deals for you to find and make a profit on!

You could approach the bank about a Short Sale on a defaulted property you’re interested in, but it does involve a lot of physical effort.  Another easier method is simply to buy the mortgage note from the bank on that same defaulted property.

You’ve been buying mortgage notes for a little while and are comfortable with the practice.  However, you’ve noticed that there are a lot of pre-foreclosure homes out there with mortgages on them too.  This is a large section of the mortgage note industry that remains untapped, but how can you get in on the profits with a defaulted property in the mix? 

It is possible to buy the mortgage note on a defaulted property.  When you use this method of real estate investment you still begin with the normal means of contacting the homeowner in pre-foreclosure through direct mail.

After you’ve spoken with the homeowner and they’ve agreed to sell to you, you’ll have the homeowner under contract to sell their home to you.  This is even though you are going to buy the note on their mortgage.  You’ll just have them sign the contract so they are locked in with you, and the homeowner doesn’t turn around to try and sell the house to someone else while you are working with the bank.  Once, you buy the note the contract becomes irrelevant.

How to Approach the Bank
Go into the bank and ask them if they would consider a Short Sale to you.  A short sale involves buying the actual real estate property at a reduced price and the bank writes off the remainder of the mortgage.  Usually they’ll say yes and begin to give you all kinds of information to turn in for final approval on a short sale.  Then, you can come up with, ‘Hey, wouldn’t it just be easier if I bought the note from you?”
 
If the bank knows how to do a note sale on a defaulted mortgage, then they’ll usually jump on your suggestion because it is so much easier to sell the note than get the process of a short sale through their system.

Once You Buy the Mortgage Note
After some negotiation the bank agrees to give you a note purchase on this property and they accept your offer of say, $70,000 for their mortgage of $115,000. 

By purchasing the note to the property you basically become the bank.  You buy the right to collect the remaining $115,000 left on the defaulted mortgage.  That’s crazy, right?  Nope.

Once you have the mortgage note you have a few options to move forward.  You as the mortgage note owner could continue on with the foreclosure and kick the homeowners out of their home, not very nice since you did approach them first.   Or you could get a “Deed in Lieu of Forclosure”. 

The Deed in Lieu of Foreclosure basically means that the property owner gives you the deed to the property when they can’t make payments on the mortgage.  When you first approach the homeowners about helping them out of their property, you’ll want to let them know that you aren’t going to save their mortgage you’re just trying to give them a clean escape from having that defaulted mortgage on their credit. 

This means that you aren’t going through with the foreclosure and the homeowner gets out without having a foreclosure mark on their record because they are just giving you the deed to the property.

The process of buying the mortgage note on a defaulted mortgage adds one more step to the basic process involved in a short sale.  However, it’s usually quicker, easier and lets you get your piece of real estate investment property

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.

You are working with a homeowner and the bank on a short sale for a defaulted mortgage.  Suddenly, the homeowner wants to know why you need all of their information.

When you’ve been in the mortgage note industry for a little while you’ll learn a few things that you weren’t expecting.  One of those things involves getting the homeowners you are working with to give you’re their information!

Getting information from the homeowner going into foreclosure can sometimes be worse than working with the bank.  Most homeowners just aren’t familiar with the steps involved in a mortgage sale, even though they themselves have a mortgage.   On the other hand, as the property investor you’ll be asking them for a lot of information, some of it quite personal in order to put together a packet for the bank and the hardship letter.  As a result the homeowner can become as stubborn as a mule when it comes to giving up information.

Here are some of the more common pitfalls of working with a homeowner with an information problem:

• They have no idea where they’ve placed all of their important documents
• They haven’t filed tax returns and so can’t give them to you for your own package to the bank.
• They just don’t understand why they need to give you all of the information if they are in default.

Try not to lose your patience with the homeowner.  They aren’t familiar with these processes, which is part of the reason you are there in the first place. 

The homeowner just needs to be made aware of the fact that the bank will make a major write off on this mortgage in the short sale or the mortgage note sale on the property.  That means you’ll need lots of information to back up your proposal and to convince the bank to take this deal. 

Explain to the homeowner, that the hardship letter that you put together for the bank is one way of providing the evidence you need to convince them to take a short sale.  It shows in dental that the homeowner hasn’t been earning enough income to be able to pay their mortgage.  Thus, you’ll need the homeowner’s tax returns as further evidence to back up the letter.  Be sure to explain this in detail to the homeowner so they really understand the reasons behind your need for lots of their personal information.

The banks really do care about the homeowners that are in genuine hardship.  So the hardship letters that you are putting together are very important.  The bank will be able to look at the letter and the evidence provided to confirm that your homeowners just couldn’t make payments because of medical bills, loss of job, loss of income or other reasons.  If it looks like the homeowners didn’t make their mortgage payments because they just didn’t feel like it, the bank will not agree to a short sale.

If you take the time to answer all of the homeowner’s questions and thoroughly explain your need for their personal information, you’ll find it’s much easier to work with the homeowner in default.