Banks and financial institutions aren’t the only ones able to own mortgage notes: You could buy and own notes, making you the one receiving the monthly payments. This lesser-known yet incredibly powerful avenue is called mortgage note investing.
In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by guest Fred Moskowitz to discuss valuable insights into diversifying investments through mortgage notes. Fred is an author, entrepreneur and speaker who is on a personal mission to teach people about the power of investing in alternative asset classes, such as mortgage notes.
Fred is an entrepreneur, speaker and author of The Little Green Book Of Note Investing: A Practical Guide for Getting Started with Investing in Mortgage Notes. In this book, Fred publishes his concise yet definitive guide for new investors seeking to learn about this market niche. The Little Greek Book of Note Investing is filled with practical advice, motivational case studies and best practices for aspiring investors.
In this episode, you will learn:
- What mortgage note investing is, and how to invest in mortgage notes.
- The advantages of investing in a mortgage note fund.
- Tips for due diligence on mortgage notes.
- Emerging trends in the world of mortgage note investing.
- And more!
The Little Green Book Of Note Investing: A Practical Guide for Getting Started with Investing in Mortgage Notes | www.FredMoskowitz.com | Bautis Financial: 8 Hillside Ave, Suite LL1 Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been edited for clarity and content. It is not a direct transcription of the full episode, which can be listened to above.
Today I’m joined by a special guest, Fred Moskowitz.
Fred is an author, entrepreneur and speaker who is on a personal mission to teach people about the power of investing in alternative asset classes, such as mortgage notes.
In his recent book release, The Little Green Book of Note Investing, Fred publishes his concise yet definitive guide for new investors seeking to learn about this market niche. The book is filled with practical advice, motivational case studies and best practices for aspiring investors.
Today, he will provide valuable insights into diversifying investments through mortgage notes. Fred, welcome to the show.
Thank you, Marc. It’s great to be here.
Let’s start with the basics. Could you explain what a mortgage note is for our listeners who may not be familiar with this aspect of real estate investing?
What Is Mortgage Note Investing?
Yeah, absolutely. I feel like a lot of people know what mortgage notes are, but not in the context of what we’ll talk about today.
Think about it like this: Most properties in the United States are purchased with financing, in the form of a mortgage. When you want to purchase a property, you:
- Go to the bank or a mortgage broker.
- Get approved for a loan (mortgage).
- Put a down payment on the property.
From there, the bank or lender funds the remaining amount. In exchange, there’s interest on the title of the property. It’s important to distinguish that that’s a secured interest, since the property has a lien.
Here’s the thing, Marc… A lot of people know about investing in real estate – whether it’s single-family homes or multi-family apartments – but let’s talk about investing in the paper.
Most people, when they think of a mortgage, they think the only role they can take is the borrower. As a note investor, you can step into the shoes of the bank and be the lender. This transitions you from being the one making the monthly payments, to being the one receiving the monthly payments.
Mortgage note investing is a great way to increase the predictability of your cash flow. Your investment is backed by collateral – by real estate – which has a tangible value. It gives you a lot of downside protection, and you can earn a really nice rate of return. That’s why I love mortgage note investing.
I think that everyone’s investment portfolio should have some portion dedicated to income-producing assets, whether it be real estate or mortgage notes.
How to Invest in Mortgage Notes
How does one go about investing in mortgage notes? Are they typically bought on the secondary market?
Yes, mortgage notes are actively bought and sold on the secondary market. Individual investors can purchase notes directly from sellers or invest passively in note funds managed by professionals. Both avenues offer opportunities to diversify portfolios and generate attractive returns.
You mentioned that one is more passive than the other. What about capital needs?
Mortgage note investing is a capital-intensive business, so you definitely need capital. I see a lot of investors sourcing their capital from real estate that they held long-term. Another thing I see a lot is someone who has an old 401(k) or IRA from a prior employer… They move that account and want to invest with the capital.
Yeah, IRAs and 401(k)s can be used if you go the self-directed route.
Due Diligence and Investment Process
What factors should investors assess to determine if a note is a good investment?
Thorough due diligence is crucial, examining factors like borrower creditworthiness, payment history, and property condition. Market conditions and location also influence the note’s potential value.
What happens if a borrower defaults on a mortgage note?
Foreclosure is a last resort, often avoided through negotiation or alternative arrangements between lenders and borrowers. Default situations are addressed through various resolution methods, minimizing the occurrence of foreclosure.
Passive Investing in Mortgage Note Funds
How do note funds work, and what benefits do they offer?
Note funds allow investors to passively invest capital, with fund managers conducting due diligence and managing investments on behalf of investors. This hands-off approach is beneficial for those seeking diversification and professional management.
When it comes to mortgage note funds, how does someone get started? How do they see what funds are available?
I get this question all the time. There are numerous funds out there, but a lot of them are done as private offerings. So, in order to be involved, an investor has to build a relationship with the fund managers.
We see this as an obstacle with a lot of alternative investment types – they are relationship-based. But the reality is there is no set place to buy and sell mortgage notes.
So I encourage those who are interested to attend investment conferences with the intent to meet people, or you can reach out to those in the industry – maybe it’s someone you come across on social media or hear on a podcast, like this one.
These relationships come in time.
What emerging trends do you see in mortgage note investing, particularly regarding technology like artificial intelligence?
Recently, there’s more of an increase in regulation (in the industry overall). As far as AI, I feel that is going to make a greater impact on the origination side, such as evaluating loan documents and applications – repeatable types of activities.
I do find AI to be quite fascinating. There’s a lot of power in it, and we will see what opportunities technology opens up in the industry as time goes on.
Alright Fred, that sums up all of the questions I have for you today. Thank you for providing so much valuable information about mortgage note investing. Where can our listeners pick up a copy of your book, and learn more about what you do?
Thank you, Marc. My book, The Little Green Book Of Note Investing: A Practical Guide for Getting Started with Investing in Mortgage Notes, is available on Amazon. It provides a high-level overview for those wanting to learn more about mortgage notes, whether you want to build your own portfolio or passively invest in a fund. A good portion of the book is dedicated to using Self-Directed IRAs as a source of capital for investing.
In addition, your listeners can contact me with questions about anything we talked about today – I always love connecting with individual investors – through my website, fredmoskowitz.com. I always love connecting with investors and building relationships… It’s a big part of what I do.
Great, we will include those in the resources section of the podcast episode. Thanks again, Fred. And thank you to everyone who tuned in to today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.