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
