Mortgage Note Investing: A Smarter Way to Invest in Real Estate

You may be wondering what note investing is and how to invest in mortgage notes. At its core, it means buying the debt, not the property. You step into the lender’s role and collect payments tied to a real estate loan. That includes mortgage notes, deeds of trust, land contracts, and other real estate-backed agreements.

In the secondary market, mortgage notes often trade hands between individuals, funds, and institutions. Some notes are performing, others are not. Some are sold one at a time, others in portfolios. There’s room for private note buyers, brokers, and institutional players, all looking for the right terms, price, and structure.

This guide covers what a mortgage note investment is, why it’s a serious option for investors, and how to become a mortgage note investor yourself. 

Mortgage note investing is a powerful way to invest in real estate without owning property directly. Instead of managing tenants or handling repairs, you’re investing in the loan agreement between a borrower and a lender—specifically, the promissory note outlining the terms of the loan and the mortgage secured by real estate assets. When you purchase a mortgage note, you become the note holder, collecting monthly payments of principal and interest from the borrower.

There are two common entry points: buy individual mortgage notes yourself or allocate capital to mortgage note funds managed by professionals. Some investors invest in a fund to spread risk across a variety of performing and non-performing notes. Others take a hands-on approach and buy mortgage notes online through note broker websites, real estate note brokers, and online marketplaces offering notes for sale.

This form of investment appeals to those who want to earn passive income, build a reliable investment portfolio, and stay in control of their investment goals and risk tolerance. You can target steady income with performing notes, or seek discounted deals by acquiring non-performing mortgage notes in bulk—which can lead to upside through foreclosure, loan modifications, or resale once re-performing.

Amerinote Xchange supports note investors aiming to grow their portfolio, exit their position, or explore new asset classes. If you want to purchase notes, sell mortgage notes, or connect with experienced note brokers, we’re ready to assist with a team of licensed loan professionals and specialized note funding platforms.

For anyone looking to invest in real estate notes, mortgage note investing offers a clear path to earning returns secured by real estate, without the friction of owning real estate outright.

In real estate note investing, your return depends heavily on the type of note you acquire. Each note carries its own risk profile, cash flow potential, and exit strategy. Most mortgage notes available for sale fall into two main categories: performing and non-performing.

Performing Mortgage Notes

A performing note is one where the borrower is making consistent payments under the agreed terms of a loan agreement. These mortgage notes are secured by real estate and often deliver steady income with fewer surprises. They’re a strong fit for those seeking a passive investment with predictable returns and lower risk exposure. Many fund investors choose this route when investing in notes through mortgage note funds or buying mortgage notes online to build a stable portfolio.

Non-performing Mortgage Notes

With non-performing notes, the borrower has fallen behind or defaulted on payments. While higher risk, they’re often priced well below face value. Investors who do their due diligence can restructure the loan, pursue a deed-in-lieu, or foreclose on the property to recover value. AX offers access to non-performing mortgage notes in bulk for those looking to scale. These assets are ideal for buyers with a clear investment strategy and a willingness to engage more actively.

Other Note Types and Investment Strategies

Mortgage note investing includes more than just residential loans. Investors also target commercial real estate notes, land contracts, mobile home notes with land, and other existing notes tied to real estate assets. These note types are often overlooked but can offer strong returns when approached with the right strategy.

Commercial notes tend to involve higher balances and stronger collateral, but they also come with more complex due diligence and longer timelines. Individual notes on land or mobile homes are typically smaller, faster to close, and may fit investors seeking short-term gain or quicker exits.

Some investors focus on non-performing mortgage notes in bulk, using loan modifications, payoffs, or foreclosure as recovery options. Others prioritize steady cash flow from performing notes with reliable monthly payments of principal and interest. There are also investors who take a hybrid approach by buying notes in bulk, holding the strong ones, and working out the rest.

On the other side, note holders often sell their notes for liquidity, risk reduction, or to avoid the opportunity cost of exiting real estate later. This movement creates ongoing opportunities across both active and passive investment strategies.

Mortgage notes are secured by real estate and tied to the terms of a loan agreement, which means each deal comes with its own structure, value, and risk profile. Investors looking to diversify their portfolios use a mix of performing and non-performing notes, often spread across different real estate markets and asset classes. For those investing in a fund, the strategy typically involves pooling capital to acquire multiple notes at scale—balancing risk while maintaining exposure to real estate–backed income.

Success comes down to selecting notes that align with your risk tolerance and return expectations. That means understanding the fundamentals of mortgage performance, doing your due diligence, and being clear about your exit plans before you invest in mortgage notes.

Getting started with mortgage note investing requires thorough due diligence. Here’s a breakdown of how experienced investors approach the space:

• Choose Your Entry Path
  There are two common ways to begin:
  • Direct purchases from sellers via note broker websites, mortgage note brokers, or real estate note brokers. These platforms often list mortgage notes for sale and can help you find notes that match your investment goals.
  • Passive investing through funds, where fund managers handle sourcing, vetting, and management. This route suits those investing in a fund typically to spread risk and avoid day-to-day oversight.
• Define Your Investment Strategy: Are you looking for monthly income, discounted purchases with workout potential, or a mix of both? Your investment strategy will determine whether you focus on performing or non-performing notes.
• Conduct Due Diligence: Before committing capital, evaluate the components of each deal, like:
  • The existing mortgage and its terms
  • Property value, condition, and lien position
  • Borrower payment history and current status
  • Interest rate, remaining balance, and loan duration
  • Legal compliance and enforceability of the note
• Match the Deal to Your Risk Tolerance: Higher discounts often come with higher risk. Consider your appetite for resolution work, the timeline to returns, and the legal process in the property’s jurisdiction.
• Clarify Your Exit Plan: Options may include holding the note to maturity, encouraging a refinance, negotiating a settlement, or pursuing foreclosure. Good deals begin with clear exits.
• Use Trusted Intermediaries: Work only with professionals, such as brokers, servicers, or attorneys who understand how notes provide value and how to structure legally sound transactions.

Mortgage notes often offer the income of real estate without the friction of ownership. The key is understanding the asset, choosing the right channel, and staying disciplined.

Mortgage note investing puts you in the lender’s seat. Instead of owning the property, you own the debt, and that comes with several advantages:

• Income Without the Headaches of Ownership: Unlike rental properties, notes don’t require property management. There are no tenants, no repairs, and no direct involvement in maintenance or turnover.
• Attractive Returns with Real Estate Backing: Mortgage notes are secured by real estate, which provides a hard asset behind your investment. Depending on the deal, returns can outpace traditional rental yields or bond rates, especially if the note is purchased at a discount.
• Flexible Investment Options: Investors can focus on performing notes for steady cash flow, or explore notes where the borrower has defaulted to pursue higher returns through workout strategies or foreclosure.
• Lower Barrier to Entry Than Property Ownership: Buying a note is often more affordable than buying property outright. Investors can acquire individual notes at various price points depending on the remaining balance and loan terms.
• Exit Liquidity Through Secondary Markets: If circumstances change, investors can sell a mortgage note to other buyers in the secondary market. The ability to exit without selling property is a major benefit.
• Diversification Without Duplication: For investors already in real estate, notes are a way of diversifying your investment without repeating exposure to property ownership. For newcomers, it’s a lower-friction way to enter the real estate space.
• Alternative Investment with Real Collateral: As an alternative investment, notes offer a mix of income and asset security—without relying on stock market swings or tenant behavior.

AX is a reliable and direct mortgage note investor, which can offer a sound and painless exit strategy to individuals, businesses and lenders alike, pertaining to the liquidation of performing residential mortgage notes and commercial mortgage notes (including select non-performing commercial notes). Let us take care of your real estate note investing starting now.

Continue reading for more criteria on how to invest in real estate notes.

AX is one of the fasting growing mortgage note investors in the secondary mortgage market today. We pride ourselves on over a decade of mortgage note investing experience which highly increases the chances of a successful bring your mortgage note sale to fruition. Dealing with the right funding source, is in fact, half of the battle when it comes to funding your mortgage note on the secondary mortgage market.

Our general mortgage note investor criteria is geared towards mortgage notes with a remaining balance of $35,000 to $2,000,000 across the board. AX has 5 separate note funding platforms that are individually geared towards certain asset classes, such as: residential performing loans, residential non-performing loans, commercial performing loans, commercial non-performing loans and mobile home with land / bare land notes. We offer full purchase buy-out option and partial purchase buy-out option.

To review our complete note purchase criteria online, please click: AX Investing Note Criteria

To review our note buying process online, please click: AX Note Investing Process

All mortgage note investors have their own investment appetite, which is decided by the mortgage note investors risk tolerance. The secondary mortgage market does not have a set note purchase criteria that all note investors follow. Depending on if you are buying performing mortgage notes or non-performing mortgage notes will decide what a mortgage investor will review when purchasing a mortgage loan for their portfolio.
On performing notes, most mortgage note investors are interested in three major items:

1. Down Payment/Equity
2. Credit Score
3. Loan Structure

On non-performing notes, most mortgage investors look for:

1. Current Property (Market) Value
2. Foreclosure Procedures within Property State
3. Borrower’s Last Payment Received/Applied

To learn more about how to invest in notes or if you have additional questions on how to invest in mortgages please click here.

What is a mortgage note investment?

A mortgage note investment is a deal where you purchase the debt on a piece of real estate instead of the property itself. You step into the role of the lender and hold the legal agreement (the note) stating what the borrower owes, the interest rate, payment terms, and default provisions.

This option for investors gives access to real estate-backed income without ownership or management duties. Notes come in many forms: performing, non-performing, residential, commercial, and more. There are platforms for investors to buy through brokers, funds, or private placements. You can buy mortgage notes online, source them from mortgage note brokers, or locate off-market deals via note holder leads and investor networks.

Unlike owning rental property, a mortgage note investment focuses on collecting debt payments rather than managing physical real estate. You’re earning from the loan itself, not from operating or maintaining the property.

Is note investing profitable?

Yes, note investing can be highly profitable when approached with strategy and due diligence. By taking the position of the lender, you earn income through interest payments, discounted payoffs, or asset recovery. Many investors buy mortgage notes below face value, allowing for built-in equity and better return potential. The secondary market offers mortgage notes for sale across a wide range of price points, so profitability depends on sourcing, pricing, and clear exit plans.

Experienced buyers use note broker websites, real estate note brokers, and targeted mortgage note leads to find quality assets. Some also work directly with private note buyers or through a note broker business for off-market deals. Like any investment, strong returns require solid underwriting and a willingness to act when opportunity appears.

Is note investing risky?

It can be, but the risk is manageable. As with any asset-backed deal, your job is to understand the loan, the borrower, and the collateral. Notes without proper documentation, unclear lien status, or poor borrower performance are high-risk and often priced accordingly. But for investors who conduct thorough reviews, the risk can be priced in, hedged, or mitigated altogether.

The risk also depends on your investment model. Mortgage note buying companies often take on higher volumes with better legal support. Private note buyers tend to operate leaner but take on more responsibility directly. In both cases, knowing the asset is non-negotiable. That’s why the best buyers treat mortgage note buying like a business, not a gamble.