Most people don’t realize that they can invest in mortgage notes. They only think of a mortgage as something they get from a bank to buy a home. It’s not something to invest in. Investing in notes enables someone to actually “be the bank”. In many instances, someone selling a home offers to finance the buyer’s purchase and “take back” a note. In doing that they are acting like a bank. It’s also common for them to decide to sell the note after several years. While they like the steady income, they may need the amount of money lent for some life activity, like buying a new car, paying for a child’s college tuition, etc.
There is a lot of security in buying notes. If you invest in the stock market you are subject to the variability of the market with no safety net. Mortgage notes have several levels of security. Most people make every effort to make their mortgage payments because they are proud to be homeowners and have a great deal of equity in their home. They also need a place to live and want to avoid renting. The notes we buy are usually low loan to value. Thus, if the borrower does default the note buyer is more likely to have their principal returned. The home could also be rented to cover the note buyers payments. All of these factors add security to your investment.