Boston Real Estate Investors Association

10 Question To Ask About Note Investing

If you’re thinking about dipping your toe into the world of investing in distressed mortgages, the following are necessary questions that you need to ask yourself before making any commitment.

  1. What’s the difference between investing in real estate property versus mortgage notes?

    One of the main differences is that with real estate property, it requires a lot more time and money. Also, it may take longer to start seeing the fruits of your labor. With real estate property, you really need to know the area where your investment is located and probably should be there to oversee any projects or problems. Additionally, it usually requires a substantial initial investment and if the homeowner stops paying and you have to foreclose it takes on a whole new life of hassles and money. With mortgage notes, you can start investing with as little as $10,000. You can buy notes all across the U.S. without having to actually visit the property. Because you can start investing so inexpensively, you can probably buy 10 second mortgages for the price of one property. Should anything go wrong with one or a few of your mortgage notes, you have several other notes to cushion the blow.

  2. Why do I want to invest in second mortgages?

    You need to decide whether you want to invest in first or second mortgages. With first mortgages, it requires a lot more money to start investing. The biggest advantage to first mortgages is that they’re less risky than investing in second mortgages. The overall strategy with first mortgages is either the homeowner is going to start paying or you start foreclosing on the property. With second mortgages, you can buy a lot more notes with the same amount of money. Should any of the notes become bad, it doesn’t drastically throw off your returns.

    There are a lot more exit strategies with seconds that can earn you significantly more profits than with firsts. While investing in seconds may be riskier than first mortgages, the opportunity for a greater return on your investment can be more significant. The overall question comes down to how much are you willing to invest and what is your comfort level with regards to risk vs reward?

  3. What skills do I need to become successful at note investing?

The cool thing about investing in seconds is that you get to wear many different hats. The key to success is identifying which hats fit and which ones don’t. There are some aspects of investing that you’ll really enjoy and know that you’re good at.  There will be other aspects that you don’t like and/or aren’t very good at. It’s important to find others that are good at those roles and hire them.

The first skill you need is being a negotiator. You negotiate when you’re dealing with sellers, homeowners, attorneys, banks, etc. It’s an important skill that comes in handy a lot.

The next skill used by successful investors is being a good detective. During the process of researching the loan prior to purchasing it, you need to find out a lot of things about the borrower, as well as the property. Additionally, after you purchase a loan, you sometimes need to locate the homeowner and often need to think outside of the box in order to track them down.

The third skill needed is to be a financial advisor. When dealing with a homeowner, you need to be comfortable with giving them various options with regards to their monthly payments based on their current financial situation.  You also need to be knowledgeable about how your loans are performing, both on an individual and portfolio basis. Understanding how you’re doing financially is crucial in determining your success.

The next skill you need in order to become successful is to take on the traits of a wise man. Depending on the situation, you need to look at things objectively, find alternative ways to accomplish your goals, write tactful letters and speak with many different people in various ways.

Next is becoming a skilled poker player.  Depending on the hand that you’ve been dealt, you sometimes need to be able to bluff.  Whether bluffing with the seller, an attorney or the homeowner, you need to try to master this skill.

The last skill needed is being a therapist.  Listening to people, gathering information and responding to their needs in a respectful way is one of the greatest assets you can achieve. The key when dealing with homeowners is to master this art, but also to be careful that you don’t let the homeowner take control of the conversation. It’s important that you let them vent, but you still need to maintain control and convey your key points.

  1. How much money do I need to get started?
    When investing in second mortgages, we typically suggest starting with a minimum of ten thousand dollars. This gives you enough so that you can purchase at least two to three loans depending on their condition.

  2. How should I finance my deals?
    There are many ways in which you can fund your deals. You can get money from your own savings or a self-directed IRA. You can also get money from friends, family and business associates.  Think about doing a joint venture with some other investors.  Keep in mind that with most investments, it takes about 2 ½ years to recoup your initial investment.

  3. Where am I going to find the loans?

    The number one thing I tell people is that they must be networking all the time! Whether it’s going to actual networking meetings, real estate investment meetings or any general financial meeting, you should always be networking.  Even if you’re in an elevator, start a conversation with the person next to you. You never know, they could be the person who has access to hundreds of loan you could buy.

    Go to seminars, trade shows, and local groups and really push yourself to get out there to meet people. It’s important to go outside your comfort level. Within Keyhole Academy and Keyhole Financial Services, we offer a great opportunity through webinars, seminars to connect investors with each other.

How do I find the right type of loans?

There are different types of loans you can purchase. From performing to re-performing to non-performing. Other factors come into play, such as which states you want to buy loans in or how large a UPB (Unpaid Principal Balance) you’re comfortable buying.  Your decision as to which type of loans, or combination of loans to buy, depends on how much you’re willing to spend, how quickly you want to see returns and what is your risk assessment.  Remember, the less risk, the more you’ll pay.

Lastly, but most important, no matter which type of loan you choose to purchase, the key to your success starts and ends with the proper due diligence.  Essentially, making sure you do the research to determine which loans you should buy and at what price. At Keyhole Academy, we dedicate one course just on due diligence.

  1. Should I service the loans myself or outsource them?

    The first thing you need to look at is time versus money versus risk.

    Ask yourself these questions:

  2. How much time will you spend servicing your loans?

  3. Could/should you be doing something else to grow your business?

  4. Do you even want to do the servicing?

  5. Who will do it better, you or the servicing company?

  6. How much do you know about all of the guidelines of collecting–what you can and can’t say to a borrower?

  7. How much extra money will you have to pay a servicer vs doing it yourself?

  8. Will the servicer be able to bring more money in from your borrowers?

  9. What’s the overall risk if you do all of the servicing yourself (without a collector’s license)?

  10. Are there options where you can use a servicing company yet do some of the workouts yourself?

  11. How do I know if I’m managing the loans correctly?

    You need to define and set your goals and with those goals, establish your expectations. What kind of returns are you looking for? How quickly are you looking to get those returns? By setting up these goals and expectations at the beginning, this allows you to continually monitor your progress and see how you’re doing compared with your initial goals. Once defined, you can determine which set of tools you’ll need to monitor the progress.  It may be reports that show you how many loans are performing vs non-performing. How long before you break-even? Which loans should you be selling or begin foreclosing on?

    These tools/reports will keep you in-line to assist you in determining if you’re succeeding with managing the loans correctly. Working with a mentor is a great way to learn in this industry.  There are many people I’ve met who have been forthcoming in sharing their skills and experiences with me.

  12. What financial and lifestyle rewards can I expect?
  • Make your own hours
    Whether working by yourself or with others, it really depends on what kind of person you are as far as work diligence.  Are you the type of person who is able to come down the stairs in your pajamas and religiously sit in front of your computer for hours on end, or are you the type of person who needs to be in an office surrounded by other people?
  • Money generated while you sleep

    Once you purchase your loan(s), if you’re able to get a certain number of them performing, those mortgage checks are going to be coming in on a monthly basis.

  • Work from various locations
    The beauty of this business is all you really need is a telephone and a computer and you can work from anywhere.
  • Buying Power Flexibility. What do you want to make of it?

    If you’re sitting there and saying, listen, right now I just want to buy five loans a month– and that’s great. Those are you’re goals.  However, if you want to be able to buy at least a thousand loans before the end of the year you need to implement certain steps in order to accomplish this.

For more information about mortgage investing contact us at 855.484. 1119 or email us at . Also, be sure to check out our website at

Please ask for discount mentioning Boston REIA

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