How to Buy Discounted Mortgages

Discounted mortgages can be solid investments.

You can buy discounted mortgages to hold as long-term investments or to resell to other investors for immediate profit. Buying mortgages, also known as notes or trust deeds, is not the same as buying real estate. In these deals, property never changes hands between buyers and sellers. You offer to buy a mortgage owner's mortgage note, secured by the property itself, in exchange for a lump sum of cash. The principal due on the mortgage will always be more than the amount of cash you buy the mortgage for--and this is how you make a profit.

Things You'll Need

• Investment capital
• High credit score
• Financial calculator
• Telephone
• Marketing brochure

Instructions

1. Become a student of the note buying industry. Many college courses, websites and books are available to teach you how to understand and analyze the industry and how to negotiate with property owners. Learning to use a financial calculator will help you analyze your investments and cash flow.

2. Find good properties with motivated sellers. Tell people that you're buying mortgages for cash. Build relationships with note brokers who can direct you to notes that are for sale. Create a brochure for your note buying business and market directly to private property owners. Place ads in print and online real estate classifieds. Your goal is to find property owners who have pressing needs for lump sums of cash. If a seller is in urgent need of cash and his property is in good condition in a good neighborhood, you have an opportunity to help this person while making a solid investment.

3. Perform due diligence. You are assuming risk when you purchase a mortgage note at a discount. Mortgages are secured by actual property--and the better the property, the less risk buying the mortgage will be. Be sure to actually visit the property being mortgaged. Is it in a good neighborhood? Is it well-kept? The other area of risk regards the mortgage seller himself. When you purchase his mortgage for a lump sum in cash, he will then start making his mortgage payments to you each month over the life of the mortgage. Are you comfortable with his credit history?

4. Make the mortgage holder a win/win offer. Determine how much of a percentage of return you want to make on the deal. This will help you determine the offer you make to the seller. For example, if you want to make a 20 percent return on your purchase of a $50,000 mortgage, you would start with an offer to the seller to buy the mortgage for $40,000 cash. Deals can become quite complex. The seller might refuse or counter with a request for more cash. You want to get the best return on your money while helping the seller solve his financial need.

References

• NoteInvestors.com: Buying Mortgages
• Note Worthy USA: About the Business
• The Paper Game