Note Buying & Seller Financing for Investors

A mortgage note is a promise to pay. When someone buys a house with a loan, they sign a promissory note agreeing to repay the lender with interest. That note is a financial instrument that can be bought and sold like any other asset.

When you buy a mortgage note, you become the lender. The homeowner makes their monthly payment to you instead of the bank. You collect principal and interest every month without owning the property, managing tenants, or fixing anything. If the borrower stops paying, you have the right to foreclose and take the property.

Notes come in two categories. Performing notes have borrowers making regular payments. You buy the note at a discount from the face value and collect the payments. A note with a $50,000 balance and 8% interest might sell for $40,000. You earn the interest plus the $10,000 discount over the life of the loan. Your yield is significantly higher than the stated interest rate.

Non-performing notes have borrowers who stopped paying. These sell at steep discounts, often 30 to 60 cents on the dollar. Your options are to modify the loan with the borrower and get them paying again, negotiate a short payoff, or foreclose and take the property. The discount gives you room to profit regardless of which path you take.

Banks sell notes because they want to clean their balance sheets. They would rather take a known loss today than manage a defaulting loan for years. That is your opportunity.

FlipMantis underwriting runs the yield analysis on note purchases. Enter the purchase price, remaining balance, interest rate, and remaining term to see your actual return.

Notes do not show up on the MLS. You need different channels to find them.

Note brokers are the easiest starting point. They work with banks, credit unions, and private lenders who have notes to sell. The broker sends you a tape, which is a spreadsheet listing available notes with details: property address, note balance, interest rate, payment history, and asking price. You review the tape, do your due diligence on the ones that interest you, and make offers.

Online marketplaces like Paperstac, NotesDirect, and LoanMLS list notes for sale from individual sellers and institutions. You can browse by state, note type, balance, and performance status. These platforms handle some of the transaction mechanics, making the process easier for newer note investors.

Direct outreach works for seller-financed notes. Many private individuals hold notes from properties they sold with owner financing. They might want a lump sum of cash instead of waiting for monthly payments. Skip trace the note holder, call them, and ask if they would sell their note at a discount. Many will.

Community banks and credit unions are underrated sources. They hold portfolios of local mortgage loans and occasionally sell batches to manage their capital requirements. Build relationships with loan officers and let them know you buy notes. When they have inventory to move, you get the call.

FlipMantis contact management helps you build and organize your note seller network. Tag contacts as note sellers, track communication history, and set follow-up reminders to stay in touch with your sources.

Buying a note without due diligence is like buying a house without an inspection. The mistakes are expensive and avoidable.

Start with the collateral. The note is secured by a property. What is that property worth? Pull comps and estimate the current market value. Compare it to the note balance. If the property is worth $120,000 and the note balance is $80,000, you have a 67% loan-to-value ratio. That gives you a solid equity cushion if you need to foreclose. If the property is worth $70,000 and the note balance is $80,000, the borrower is underwater and your collateral does not cover your investment.

Review the borrower payment history. How many months has the borrower paid on time? How many missed payments? A note with 24 months of perfect payment history is a different risk profile than one with six late payments in the last year. Request the payment ledger from the current note holder.

Run a title search. Confirm the mortgage is properly recorded, check for other liens, and verify the property taxes are current. A first-position note is safer than a second position. If there is a first mortgage ahead of yours, your note is subordinate and you get paid last in a foreclosure.

Check the note documents. Read the promissory note and the mortgage or deed of trust. Verify the terms match what the seller represented: interest rate, payment amount, maturity date, and any balloon payment provisions. Look for modification agreements that may have changed the original terms.

Calculate your yield. This is your actual return based on the purchase price, not the face value. Use the internal rate of return (IRR) calculation. FlipMantis underwriting tool computes the yield for you when you enter the purchase price and note terms.

You do not have to buy notes from other people. You can create them by selling properties with seller financing.

Here is the setup. You buy a property for $60,000 cash. Maybe you do a light rehab for $10,000. Your all-in cost is $70,000. Instead of selling to a cash buyer for $85,000, you sell to a retail buyer for $100,000 with owner financing. They put $10,000 down and you carry a note for $90,000 at 9% interest for 20 years.

Your monthly payment is approximately $810. You invested $60,000 after the down payment and you are earning $810 per month. That is a 16.2% cash-on-cash return, every month, without managing a tenant or maintaining a property. The buyer handles everything because they own the house.

Qualify your buyers carefully. Run a credit check, verify income, and require a minimum down payment of 10%. The down payment gives the buyer skin in the game. Buyers with a down payment are less likely to default because they have something to lose.

Use a loan servicer to manage the payments. They handle collection, escrow for taxes and insurance, and provide year-end tax documents. The cost is $20 to $30 per month and it keeps everything professional and legally compliant.

If you need cash later, sell the note. A performing note with 12 months of payment history sells for 75 to 90 cents on the dollar to note investors. You created the asset, earned monthly income, and now you can sell it for a lump sum to fund your next deal.

FlipMantis pipeline manages seller-financed dispositions from listing through note creation. Track each buyer payment and note performance in the deal record.