Real Estate Mortgage Notes

Yesterday, we answered the abundantly popular question, what exactly is a mortgage note? Today, we continue our Note Investing 101 series by tackling another common query: what’s the difference between investing in a mortgage note and investing in real estate?

Investing in property is what most people (including many BigBidder.com investors) are familiar with. When you purchase property, you make money as the property value increases, or you can earn rental income. As the owner, it is your responsibility to maintain the property, manage any tenants, and pay property taxes and insurance.

When you invest in a mortgage note, you’re buying the contractual obligation that the borrower has entered into. Essentially, you take the place of the lender. The borrower remains responsible for property maintenance and taxes, and makes his monthly mortgage payments to you, the note holder. While you are not buying the property itself, the note is still secured by the property. This means that if the borrower defaults on the loan, you could end up owning the property.

A mortgage note is the rare type of investment that is backed by something tangible: property. This last point is very important to understand, as it is part of what makes mortgage notes such an attractive alternative investment.

Next up on the Note Investing 101 agenda, we’ll go over the nature of the secondary market: who are the sellers, and why are they selling in the first place?

To read up on previous posts in this series, click the links below.

Note Investing 101

1. What is a mortgage note?
2. Real Estate vs. Mortgage Notes

Mortgage note investing is hardly a novel idea. Yet until BigBidder.com launched, note investing was largely an insider game restricted to Wall Street firms with the financial wherewithal to purchase huge pools of loans. In fact, most people never had the opportunity to purchase an individual mortgage note until BigBidder.com came along. So it’s no surprise that many people are relatively unfamiliar with note investing.

As with any new investment, people want to understand what they’re getting into before they jump in. To help people learn more about note investing, we’ve developed a series of blog posts titled Note Investing 101, and over the next few weeks, we’ll be going over the basics of mortgage note investing, covering a new topic each blog post. Today, we answer the question, what is a mortgage note?

A mortgage note is a promissory note stating the principal amount due, the rate of interest, and the terms for repayment of the loan. The borrower signing the note, and any cosigners, are personally liable for the repayment of the debt. The collateral used to secure the note is real property.

Generally speaking, these are home loans made to buy or refinance property. A borrower gets a mortgage from the bank and makes their monthly mortgage payment to whomever owns the note — whether it be the bank, a hedge fund, or an individual such as yourself.

Next time, we’ll go over the differences between investing in real estate and investing in mortgage notes.

Over at BigBidder.com, we’re watching the exciting conclusion to our third Last Call auction of the month! Multiple bidders have stepped up to compete for this non-performing mortgage note made to purchase a home in Naples, Florida. With a minimum bid of just 10 percent of the total loan amount, we had a feeling this note would generation some substantial interest.

The recent bidding activity across a wide range of notes proves that people are starting to realize the potential and versatility of note investing. We received a record number of bids on a few performing notes back in the beginning of the month, a sign that some investors seek the relative security afforded by a performing loan investment. Meanwhile, the recent Last Call action for this non-performing note in Florida demonstrates that there are still many buyers out there looking to take advantage of heavily discounted distressed assets.

Mortgage note investing on BigBidder.com does require a bit more mental legwork (i.e. background research, planning, an understanding of the basics of note investing) than simply buying stock on E*Trade. However, in return, investors on BigBidder.com gain access to a lucrative alternative investment that was previously only available to Wall Street insiders and those whose rolodex was filled to the brim with financial institution executives. There truly has never been a better time to invest in notes. The deals are unprecedented and the opportunities are limitless. Head over to BigBidder.com today to get started!

We’ve just added some new notes for auction on BigBidder.com, and with minimum bids of just 10% of the total loan amount, these may be our biggest steals yet! Click on the pictures below to check out the auctions for yourself. To view more information on each note, simply register an account at BigBidder.com. It is free, and allows you to save searches using specific loan criteria.

NOTE: Remember, at BigBidder.com, bids are made in terms of a percentage of the total loan amount.

Auction #136-1-3

Auction #136-1-4

Auction #136-1-7

Two auctions for performing notes on BigBidder.com ended recently with successful sales after receiving dozens of bids from a number of interested buyers, dispelling the myth that auctions only work for distressed assets. The two auctions yielded almost 40 bids combined, with Last Call®, our patent-pending bid extension process, lasting for days.

Both notes were performing loans made to purchase beautifully built K Hovnanian homes. The combined balance on the two loans was over $1 million. These were not troubled loans, and they were not going to sell at the steep discounts of 60% or more that often characterize distressed asset auctions. But in a market saturated with such assets, there are still many buyers who seek the relative safety that a performing note investment offers.

At BigBidder.com, you can find auctions for mortgage notes of all classes located across the country. Whether you’re looking for the upside potential of a heavily discounted sub-performing note, or the relative security afforded by a consistently performing loan, there is truly something for everyone on BigBidder.com.

The heat is on at BigBidder.com, where three auctions for loans made to purchase K. Hovnanian homes have entered Last Call, our patent-pending process that extends the bid deadline in one hour increments until no more bids are received, giving everyone a fair chance to submit new bids before the auction ends.

Head over to BigBidder.com today to check out the exciting conclusion to these three auctions. Hurry! There’s no telling how long Last Call will last. Click the links below to check out each auction.

Auction #162-1-1

Auction #162-1-2

Auction #162-1-3