Mortgage Note Investing For Beginners



Mortgage note investing is a great way to earn passive income. It can also be a good way to build your portfolio if you're just starting out. Even if you're an experienced investor, mortgage notes can be a smart option for adding diversification to your investment portfolio, and Four One Capital is here to help!



What is a Mortgage Note?

A mortgage note is a legal document that secures a loan for real property. When you take out a mortgage, the lender agrees to lend you money so that you can purchase your home or other investment property. In return, they demand collateral in case of default. They also require regular payments in order to service the debt and ensure that their risk is minimized.


The mortgage note serves as evidence of your obligation to repay the creditor on time and in full as agreed upon by all parties involved: yourself (the borrower), bank (lender), title company/escrow agent (mortgagee), attorney/notary public who drew up documents at closing (notary public)


Types of Notes

There are three general categories of mortgage notes: performing, non-performing and mixed.

  • Performing notes are those that are current on their payments.

  • Non-performing notes are those that are not current on their payments.

  • Mixed notes are a combination of both performing and non-performing loans.


Performing and Non-Performing notes

When you purchase a note, it is either a performing note or a non-performing note. A performing note is one that is current on its payments (i.e., the borrower has made at least their last two monthly payments). In general, performing notes are much more stable and less risky because they have already proven themselves to be able to make timely payments.


Non-performing notes are those that are behind on their payments for whatever reason: the property was foreclosed upon or repossessed by the lender; the borrower defaulted on their loan; etc. These notes generally carry more risk because there's no guarantee that the buyer will ever receive any money from them (or even get paid back).


The Three Formulas

The three formulas you will use to calculate the price of an investment property are:

  • LTV Formula - Loan To Value

  • CCR Formula - Current Cash Flow Received (also known as Equity Multiple)

  • TOE Formula - Total of Equity (also known as Total Return on Equity)


LTV Formula - Loan To Value

The LTV ratio is the ratio of the loan amount to the value of the property. For example, if you have a $100,000 home and borrow $50,000 from your lender, then your loan-to-value (LTV) ratio is 50%.

If you are an investor who purchases properties with high LTV ratios and does so carefully with good cash flow properties in mind, then you can make money. Generally speaking, investors should shy away from investing in mortgages with an LTV ratio above 80% because it’s hard to get paid back on time when borrowers have little equity in their homes. This is especially true if there are any negative factors like job loss or divorce involved as well.


CCR Formula - Current Cash Flow Received (also known as Equity Multiple)

CCR is the amount of money you receive on a monthly basis. This can be thought of as your monthly income. The higher the CCR, the greater your return will be (as long as all other numbers are kept equal). CCR is calculated by dividing the current cash flow received by 12 months and then multiplying that number by 100%.

If you were to receive $2,000 per month for the next 10 years, your CCR would be 2% ($2000/12 x 100%). Now let's say you only get $1,800 for those same 10 years: now your CCR would be 1.6% ($1800/12 x 100%).


TOE Formula - Total of Equity (also known as Total Return on Equity)

TOE Formula is a way to calculate the percentage of return on your investment. It is also known as Total Return on Equity or Return on Investment (ROI). In order to calculate this, you need to have a basic understanding of how mortgages work and how lenders and investors are paid for loaning money.


The TOE Formula uses 2 variables:

  • The principal amount that was loaned out at the beginning of an investment period

  • The Annualized Interest Rate multiplied by 12 months

How to Find Notes For Sale to Purchase?

  • Look at websites that list notes for sale. There are a number of websites that

sell notes and mortgages and you can buy them from them, such as Zillow Mortgages, Lending Club, RealtyShares, and Prosper. These sites have a large volume of deals available so you should have no problem finding something if you’re patient enough.

  • Look at the MLS (Multiple Listing Service). The MLS is basically like real estate agent heaven since it has all the local listings in one place! When working with an agent to purchase a note, I highly recommend contacting one who is familiar with investing in notes because they will be able to help guide you through this process step by step. They may even be able to provide financing options if needed which would make things much easier than having to go out on your own looking for financing options that might not even exist yet!


  • But... don't worry Four One Capital has your covered, Will will do the searching for you and find something that has great returns and fits in your budget!


Learning the art of note investing will bring you closer to financial freedom.

Learning the art of note investing will bring you closer to financial freedom. You should start by learning the basics of note investing, including:

  • What notes are and how they work

  • The different types of notes

  • How to find notes for sale and evaluate them for purchase


Don't let the idea of investing scare you. It's a great way to make money and get ahead in life. It can be hard to know where to begin if you're just starting out. But don't worry! This article has all the information you need about mortgage note investing for beginners, and Four Once Capital will do all the work for you!

Take a look at these tips and strategies for getting started with real estate investing today - without risking anything, not even your time and effort. When you invest with Four One Capital, we take care of the hassle or possible stress.



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9722 Groff Mill Drive, Suite 912 Owings Mills, MD 21117-6341 Mail: invest@fouronecapital.com Tel: 855-509-1006 ​

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