No Question, buying and holding or reselling private real estate mortgages can be a very lucrative investment or business. By "private" we mean mortgages, (Trust Deeds, Land Contracts, Contracts For Deed, etc.) that wherein one party, the seller (not a bank or other institutional lender) has sold a real estate property to another party and has taken back a mortgage from the second party or the buyer.
Now there are other types of "paper" or notes that fit the above description that may be secured by collateral other than real estate. Mobile homes, business fixtures & equipment, inventory, cars, boats, phone, etc. We are not going to discuss these here, however, we may at a later time because investing in these type of notes can also be very profitable, sometimes more so than real estate notes because of the greater risk. When the risk is greater, the possible profits are also greater as are the possible losses.So, back to the question; How do we find "Good" mortgages to invest in? There are a number of ways to do this. If you get active in buying private mortgages or lending direct, the word will quickly get around and you will have more deals to look at than you can probably handle. Let's discuss some of the ways to start finding those mortgages.
Check ads in the classified section of the newspaper - Look in "Money Wanted", "Mortgages For Sale", or "Investor Needed".
Run your own ad: "Mortgage Buyer", or "Money To Lend On Real Estate".
Develop a relationship with a Real Estate broker that has access to Multiple Listing Service "MLS". The broker can access MLS and find out sales that were made wherein a seller financed the property. Contact the seller to see if he wants to sell the mortgage.
Best Bet, in my opinion, is to contact a "Note Broker". This is a person who specializes in finding mortgages for sale. The Note Broker finds a buyer for the mortgages and charges the mortgage owner a commission. Or, the broker may buy the mortgage himself to resell to an investor. You can find these brokers in several ways. Such as:
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| How To Find Good Mortgages To Invest In |
a. Check the Yellow Pages for Mortgages, or Note Buyer
b. Check ads in the newspaper which may read: "We Buy Mortgages", "Mortgages For Sale", "Top Dollar For Your Note", etc.
c. Another way to find a broker is to ask among Real Estate Brokers if they know of any brokers who buy notes.
Bill publishes a monthly newsletter "The Paper Source", which is a newsletter about the Note Business. Bill has a registry of brokers all over the country. He could probably refer you to someone. You might even want to subscribe to the newsletter to learn more about the business. If you contact Bill (or Allison, his wife & partner) tell him I referred you!
Once the word gets around, AND IT WILL, that you have money to invest in mortgages, you will have several to choose from. "WORD OF WARNING": Don't get too eager just because these are the first ones and you are excited to buy a mortgage. You MUST do your Due Diligence or your career as a 'Mortgage Investor' will quickly change to 'Owner Of Real Estate You Don't Want'.
Just like other investment opportunities, be it Stock Market, Commodities, etc, there are good and bad investments in mortgages. However, there is one GREAT difference. If you do your diligence, you will be able to know you made a good investment and not have to depend on speculation. That's one of the main reasons I like mortgage investing as opposed to many other investments. "YOU ARE IN CONTROL OF YOUR MONEY".
OK, lets talk about Due Diligence and other factors when analyzing a mortgage. The note broker calls and tells you he/she has a mortgage for sale; or, maybe you located a private party through the newspaper who has a mortgage for sale. NO DIFFERENCE IN DUE DILIGENCE. My point is: No matter where or how you find the note, you still use the same safety precautions.
If I could pick out one single area that has caused investors the most problems, it would be greed. Trying to get the highest dollar return and not checking out either the property securing the mortgage and/or the party making the payments on the mortgage. This includes pressure such as, "You have to act fast or this deal will be going to somebody else." If this situation arises, my advice is to say, "Well that's too bad, but I'll have to let it go." Mortgages available for sale are kinda like buses - "If you don't get this one, there will be another one along in a little while."
b. Check ads in the newspaper which may read: "We Buy Mortgages", "Mortgages For Sale", "Top Dollar For Your Note", etc.
c. Another way to find a broker is to ask among Real Estate Brokers if they know of any brokers who buy notes.
Bill publishes a monthly newsletter "The Paper Source", which is a newsletter about the Note Business. Bill has a registry of brokers all over the country. He could probably refer you to someone. You might even want to subscribe to the newsletter to learn more about the business. If you contact Bill (or Allison, his wife & partner) tell him I referred you!
Once the word gets around, AND IT WILL, that you have money to invest in mortgages, you will have several to choose from. "WORD OF WARNING": Don't get too eager just because these are the first ones and you are excited to buy a mortgage. You MUST do your Due Diligence or your career as a 'Mortgage Investor' will quickly change to 'Owner Of Real Estate You Don't Want'.
Just like other investment opportunities, be it Stock Market, Commodities, etc, there are good and bad investments in mortgages. However, there is one GREAT difference. If you do your diligence, you will be able to know you made a good investment and not have to depend on speculation. That's one of the main reasons I like mortgage investing as opposed to many other investments. "YOU ARE IN CONTROL OF YOUR MONEY".
OK, lets talk about Due Diligence and other factors when analyzing a mortgage. The note broker calls and tells you he/she has a mortgage for sale; or, maybe you located a private party through the newspaper who has a mortgage for sale. NO DIFFERENCE IN DUE DILIGENCE. My point is: No matter where or how you find the note, you still use the same safety precautions.
If I could pick out one single area that has caused investors the most problems, it would be greed. Trying to get the highest dollar return and not checking out either the property securing the mortgage and/or the party making the payments on the mortgage. This includes pressure such as, "You have to act fast or this deal will be going to somebody else." If this situation arises, my advice is to say, "Well that's too bad, but I'll have to let it go." Mortgages available for sale are kinda like buses - "If you don't get this one, there will be another one along in a little while."
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| How To Find Good Mortgages To Invest In |
A good place to start is to check out the broker or the party that brings you the opportunity, unless of course, it is a mortgage for sale you located yourself. The next party I would check out (as much as is practical), is the party selling the note. For example:
Is this a "Mom & Pop" type deal wherein a private party has sold probably the only Real Estate they will probably ever sell and carried back a mortgage? Or,
Is the seller a "Flipper" who buys mortgages and resells them to investors? Or,
Another kind of "Flipper" who buys a property and does nothing to it and flips it to another with a marked-up price with nothing down? Or,
A rehaber - a party that buys property in need of repair, fixes it up and resells it to another party?
The point is - There are all kinds of people who sell property and finance it for the buyer. Also, there are many buyers who want a home and don't really care about price or interest rate. They are more concerned with; how much is the down payment, and how much are the monthly payments.
What makes a GOOD mortgage investment? One that returns ALL of your principal and all of your interest as agreed. The best way to insure this happens is to make sure there is plenty of equity to protect your position.
Why do you have to have plenty of equity? Because if you continually invest in mortgages, sooner or later you are going to buy a mortgage in which the person making the payments stops paying. This can be a payer that you thoroughly checked out before you bought the mortgage and he checked out great. Excellent pay history, excellent credit, good job, etc. However, things happen. People die, get sick, lose their job, etc. If you buy many mortgages it can and probably will happen.
When you look at a mortgage to buy, you have to assume that you may end up owning the property that secures the mortgage.
A question you must be able to answer BEFORE you buy the mortgage is: "If I have to foreclose on this mortgage, is there enough equity in the property that I can be reasonably sure that I can get my investment back?" To analyze this potential investment you need to consider: "How much is the maximum investment in this given mortgage you can make in relationship to the value of the property? Some "general" rules used by different investors have been: "Do not invest more than 70% to 75% of the value of the property. This is a GENERAL rule. You have to develop your own criteria based on your Real Estate marketplace." You have to take into consideration how much it will cost you, above your investment, to sell the foreclosed property. Such as: "What are comparable properties selling for in the area where the subject is located?" This is one of the reasons why it is very important to have a professional appraisal done BEFORE you buy the mortgage.
Is this a "Mom & Pop" type deal wherein a private party has sold probably the only Real Estate they will probably ever sell and carried back a mortgage? Or,
Is the seller a "Flipper" who buys mortgages and resells them to investors? Or,
Another kind of "Flipper" who buys a property and does nothing to it and flips it to another with a marked-up price with nothing down? Or,
A rehaber - a party that buys property in need of repair, fixes it up and resells it to another party?
The point is - There are all kinds of people who sell property and finance it for the buyer. Also, there are many buyers who want a home and don't really care about price or interest rate. They are more concerned with; how much is the down payment, and how much are the monthly payments.
What makes a GOOD mortgage investment? One that returns ALL of your principal and all of your interest as agreed. The best way to insure this happens is to make sure there is plenty of equity to protect your position.
Why do you have to have plenty of equity? Because if you continually invest in mortgages, sooner or later you are going to buy a mortgage in which the person making the payments stops paying. This can be a payer that you thoroughly checked out before you bought the mortgage and he checked out great. Excellent pay history, excellent credit, good job, etc. However, things happen. People die, get sick, lose their job, etc. If you buy many mortgages it can and probably will happen.
When you look at a mortgage to buy, you have to assume that you may end up owning the property that secures the mortgage.
A question you must be able to answer BEFORE you buy the mortgage is: "If I have to foreclose on this mortgage, is there enough equity in the property that I can be reasonably sure that I can get my investment back?" To analyze this potential investment you need to consider: "How much is the maximum investment in this given mortgage you can make in relationship to the value of the property? Some "general" rules used by different investors have been: "Do not invest more than 70% to 75% of the value of the property. This is a GENERAL rule. You have to develop your own criteria based on your Real Estate marketplace." You have to take into consideration how much it will cost you, above your investment, to sell the foreclosed property. Such as: "What are comparable properties selling for in the area where the subject is located?" This is one of the reasons why it is very important to have a professional appraisal done BEFORE you buy the mortgage.
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