Real Estate Mortgage Notes

Now that we’ve explained what a mortgage note is and went over the various reasons to invest in notes, let’s dive into the meat of note investing.

Mortgage notes are classified by their recent pay history. There are several different classifications of mortgage notes on BigBidder.com.

Performing: A performing note is a loan that is current, meaning the borrower has made all of their monthly mortgage payments on time.

Re-performing: A re-performing note indicates that the borrower has had repayment issues in the past, but has gotten back on track and made his monthly payments as agreed for at least the last six months.

Sub-performing: A sub-performing note means that the borrower is up to 60 days delinquent or has been delinquent three or more times in the last 12 months.

Non-performing: These are loans that are more than 90 days delinquent. The borrower has defaulted on the terms of the loan, often times resulting in foreclosure of the property.

Next week, we’ll go over how to make money from performing notes.

To read up on previous posts in our Note Investing 101 series, click the links below.

Note Investing 101

1. What is a mortgage note?
2. Real Estate vs. Mortgage Notes
3. Who are the sellers?
4. Why invest in 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