Investing in mortgage notes can be a very profitable investment if you know where to look for them and how to invest in them. Mortgage notes are issued by private parties and institutions like banks. Some are issued by home sellers who wish to provide limited financing to their buyers. Others are issued by private investors. It is the private investors who are looking to sell out their position in order to capitalize on other opportunities.
To look for sellers of mortgage notes, start by placing a classified ad in your local newspaper. State that you are interested in buying existing mortgages. You can even advertise on the Internet. There are investor websites that cater to people who buy and sell mortgage notes.
Next, visit a home or property that has a mortgage note for sale. Be sure that you are comfortable with the condition that the home is in, as you might end up foreclosing on the borrower in the event he defaults on the mortgage.
To calculate the equity portion of the property, divide the amount owed by the current appraised value. This will give you a loan-to-value (LTV). Conservative mortgage investors will not invest in mortgages with an LTV greater than 80 percent.
Determine your investment yield. Don't confuse this with the interest rate on the mortgage note. Divide the total payments in 12 months (interest only) by your investment purchase price of the mortgage note. You will quickly see that your yield will be higher than the actual rate on the mortgage note. This term is called "discounting the note."
Complete a title search on the property. This will give you evidence if there are any other liens on the property, such as tax liens or other loans. Attempt to get a clean tile, free from other types of liens.