Little-Known Aspects of the Note Buying Industry

Tara Mastroeni
Published: January 12, 2017 | Updated: December 10, 2021

Note buyers in the real estate industry

The primary holders of mortgage notes are banks, credit unions, and other professional lenders that most people turn to when they need a loan to purchase a home or building. However, there are also a large number of private individuals who hold mortgage notes as well. These note buyers in the real estate industry bring different types of expertise and knowledge into their business that many new entrepreneurs can learn from.

Often, these privately-held notes result from seller financing agreements in which property sellers function like traditional lenders: They finance the sale or a property or in some cases a small business and receive monthly mortgage payments from the buyer until the loan is paid. Like a conventional lender, the seller profits from earning interest on the loan.

If you’re considering becoming a note buyer in the real estate industry as a note buyer, you probably know the basics of seller financing and understand why many individual note holders are motivated to sell their investments. However, you may not be familiar with the following aspects of the industry that can significantly impact your success as a note buyer.

1. No Need to be a Company to Compete

Note buyers in the real estate industry

Some of the biggest note buyers in real estate are companies that have been investing for decades but this doesn’t preclude you from getting in on the action. Many larger, corporate buyers started out as one-person operations that strove for entrepreneurial success. If you have a great business plan and sound intuition, there’s no reason why the same thing can’t happen for you.

2. Sale of Notes Can be “Full” or “Partial”

We typically discuss note sales in which the mortgage note is fully liquidated. However, many sellers aren’t aware that partial mortgage note sales are also possible. When a portion of a note is sold, the seller receives a lump sum and continues to receive monthly payments for the portion of the note that’s retained.

For note buyers, a partial sale can be a good option when a note looks promising but also entails some obvious risk factors such as lack of down payment or poor credit rating of the borrower. If the note performs well, you can re-engage the note holder to see if the person is interested in selling the remainder of the note down the road.

3. You Can Trade Notes Instead of Selling

Imagine you have a residential mortgage note portfolio of 20 notes worth a total of $4 million, and you decide you would rather own commercial mortgage notes instead due to the investment attraction of less regulations surrounding commercial note servicing. Depending on the market, selling all of those notes for top dollar could take awhile for sure, whereas trading your portfolio for a portfolio of residential notes for that of commercial notes of similar value could require only one transaction. You may need the services of a well-connected note broker or note investor to make it happen, but the option is certainly there.

4. You Can Insure the Value of Notes

Note buyers in the real estate industry

There’s almost nothing of financial value that you can’t protect with an insurance policy. Businesses insure service contacts, retailers insure freight shipments, and professional musicians who play instruments have even been known to insure their hands. With those examples in mind, remember that you can insure the value of a mortgage note as well.

One of the main goals of investors is to buy notes that are low-risk investments, but there’s always a chance that the property buyer could stop mortgage payments and be evicted. If this happens, an insurance policy can pay you money you would have received had the mortgage remained active. The payment buys you time to find a new buyer and execute a new mortgage.

Join the Industry’s Premier Note Buyers in Real Estate

If you want to invest in your financial success and you’d like to have a more concrete understanding of how note buying works, then consult our Note Buying Process. For additional information, please call us today at (800) 698-3650, or use our contact form, to contact an experienced mortgage note broker.