Mortgage Notes: Where Did They All Go?

By Fuquan Bilal

Mortgage notes still offer one of the best investment opportunities out there. The big question right now is, where do you find them?

Many more investors have been turned on to the benefits of investing in mortgage notes over the past few years. Some have been doing it for themselves. Others have started small businesses around it. Many have come to use it as a channel for acquiring discounted real estate to rehab and flip or to add to their rental property portfolios. Others just love the passive income and high returns notes offer.

Unfortunately, mortgage notes for investing seem to have become far more scarce for the average individual investor or small firm. Those they can find are often more expensive and offer far slimmer spreads than they used to. What’s the deal with that? Where did all the good notes go? How can you find and invest in them?

With greater awareness of this asset class, we’ve also seen a far greater demand for them. That competition has eaten away at some of the inventory from the most obvious channels, while boosting the prices to a premium. This demand is coming from solo private investors, small companies, and even bigger funds who are eager to lock into appetizing deals while they last.

Changing Market Dynamics
An improving economy, rebounding credit, and rising home equity have all helped improve mortgage loan performance. At NNG Capital we are easily working out 70% of our loan notes to performing status with existing borrowers. Among the remaining 30% we are frequently achieving successful sales and negotiating deed in lieu arrangements.While we may have far better workout rates and success rates than many others, it still suggests that there are soon going to be even fewer non-performing mortgage notes out there to buy at discounts. There will always be a default rate and distressed situations, but they may be less accessible to the average investor.

Limited Access
To compound the above, those with the inventory have had to become far more selective in who they sell notes to as well. If you aren’t ready and able to put in at least $3M-$5M to make a purchase, banks just don’t want to talk to you. They want to move assets in bulk to the biggest, best qualified, who have proven track records of success and integrity. That eliminates most investors today.

Finding Notes
The good news is that there are still some options. NNG still releases some individual notes to investors looking to get started or add to their personal portfolios. And the NNG Capital Fund provides investors the ability to participate in our success and benefit from our size – both of which translate into relationships that yield bulk access to notes, deeper discounts, more value, and reliable results.

Investment Opportunities
Find out more about investing in secured debt and real estate, go to NNG Capital Fund

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