Note Investing: How to Invest in Mortgage Notes
Become the bank. Earn real-estate-backed income without owning, fixing, or managing property. Whether you're brand new or scaling a portfolio — start at your level below.
Note investing means buying the mortgage — the loan on a property — instead of buying the property itself. You become the bank: the borrower makes their monthly payments of principal and interest to you, secured by real estate. Investors buy these mortgage notes at a discount to earn predictable, real-estate-backed income without the work of owning property. At JKP Holdings we've bought hundreds of performing and non-performing notes since 2010.
Dave PutzNote investor since 2010
Host, Real Estate Notes Show
Where are you in your note journey?
Pick your stage — each level page hands you the training, tools, and blogs picked for exactly where you are. No wall of text required.
Just Starting Out
Researching, or bought your first note. Get the fundamentals, training, and community.
Start at Level 1 → Level 2Building a Foundation
A few notes in (1–3). Sharpen your toolbox and core resources.
Open Level 2 → Level 3Scaling Your Business
Growing a portfolio (3–10). Tools and resources to scale.
Open Level 3 → Level 4Automation & More Assets
Systemizing (10–25). Add automation and grow your asset base.
Open Level 4 → Level 5Pools & Portfolio
Experienced operator (25+). Manage pools and your full portfolio.
Open Level 5 →📩 New to notes? Join our free beginner note-investing email list →
What is a mortgage note?
When someone buys a property with a loan, two documents are created: the mortgage (or deed of trust), which pledges the property as collateral, and the promissory note, which is the borrower's written promise to repay. The note spells out the loan amount, interest rate, payment schedule, and terms. That note is an asset — it can be bought and sold, just like the property itself. When you own the note, you own the right to collect the payments and the security behind them.
What is note investing?
Note investing is buying that promissory note — usually at a discount to its unpaid balance — so the borrower's payments now flow to you. You step into the lender's shoes and effectively become the bank. Instead of buying a house, renovating it, and finding tenants, you buy the debt and collect monthly principal and interest. There are no tenants, toilets, or repairs — we explain that mindset shift in lienlord vs. landlord. Your return comes from the gap between what you paid for the note and what it pays out over time.
JKP Holdings has been buying notes since 2010 across a 17-state footprint for non-performing loans and nationwide for performing loans, in both 1st and 2nd lien position. That hands-on volume is why our complete guide to note investing leans on real deal experience, not theory.
Performing vs. non-performing notes
The single biggest fork in note investing is whether the borrower is paying. We break the two down in detail in performing notes vs. non-performing notes — here's the short version.
Performing notes
The borrower is paying on time. A performing note is the most passive way to invest — you buy it, the servicer collects the payment, and you receive predictable monthly income. Returns are lower than non-performing deals, but so is the work and the risk.
Non-performing notes
The borrower has stopped paying. These notes sell at steeper discounts, and the return comes from a "workout" — modifying the loan so the borrower can resume paying, arranging a settlement, or, as a last resort, foreclosure. Non-performing notes can produce the highest returns, but they require more expertise, patience, and capital. This is where due diligence matters most.
How note investors make money
There are three common ways:
- Buy and hold (clip the coupon). Buy a performing note and collect the monthly payments for steady income.
- Fix and resell. Buy a non-performing note, get the borrower paying again, then sell the now-performing note at a higher price.
- Loan-to-own. If a workout isn't possible, the foreclosure process can result in owning the underlying property — often for far less than market value.
The discount you buy at is the foundation of every one of these strategies — here's why notes sell at a discount — which is why pricing a note correctly and doing your due diligence before you offer is the single most important skill. It starts with learning to read a loan tape.
Seller-Financed Note Problems: 7–8 of Every 10 Have Legal Issues
In our experience, when a note is created through seller or "creative" financing, 7 to 8 out of every 10 were written with a legal or underwriting issue — a non-compliant interest rate, missing key terms in the promissory note, or no real underwriting at all. It's a theme we come back to constantly on the podcast, and it's exactly why due diligence isn't optional before you buy. Before you create a note, you should run it through our free Note Validation tool to spot these problems early.
— Dave Putz, JKP Holdings · Real Estate Notes ShowBefore you look to buy your first note: the 9-step due-diligence checklist — $9.99
The exact checklist Dave runs on every note before bidding — written in plain English so you can run it yourself. The cheapest insurance in note investing.
Get the Ebook — $9.99 →How to get started in note investing
You don't need a fortune to begin. Many investors start with a single performing note or a partial. The path that works:
- Learn the fundamentals — what to look for, how income and risk work. (Our Beginner Series is built for exactly this.)
- Decide your strategy — passive performing income, or higher-effort non-performing workouts.
- Learn to price and do due diligence — confirm the documents, the collateral value, and the payment history before you ever bid. Start with our 13 indicative-offer due-diligence items.
- Buy your first note — start small, learn the servicing process, then scale. When you're ready, browse notes for sale.
How much money do you need? Partials and performing notes can start in the $5,000–$25,000 range; whole non-performing notes often run $25,000 and up. The bigger requirement is knowledge — a cheap note you didn't vet is more expensive than a fair price on a clean one. (Looking to sell a note instead of buy one? Here's how to sell your mortgage note.)
Want it laid out step by step? The JKP Beginner Series walks you from the fundamentals all the way to evaluating and buying your first note — at your own pace.
See the Beginner Series →Common note-investing terms
- UPB (Unpaid Principal Balance)
- The amount of loan principal the borrower still owes — the starting point for valuing a note.
- Note vs. mortgage
- The note is the promise to repay; the mortgage (or deed of trust) is what secures it with the property.
- Seasoning
- How long the borrower has a track record of payments. More seasoning usually means a safer, higher-priced note.
- Lien position (1st vs. 2nd)
- Where you stand in line to be paid if the property is sold or foreclosed. 1st liens are paid first; 2nds carry more risk.
- Workout
- The process of resolving a non-performing note — a loan modification, settlement, deed-in-lieu, or foreclosure.
From Dave: When we got involved in notes, it was the Wild West — it wasn't this easy, and very few investors were in the space. That's changed. Today there's a real community to lean on and a ton of content from experienced investors. Wherever you're starting, you don't have to figure it out alone — that's exactly why we built these resources.
Learn note investing on the Real Estate Notes Show
Dave Putz & Nathan Turner cover the real mechanics of note investing — including the one most people get wrong: whether you need a license to buy notes (it depends on your state). Free, every episode.
Listen to the podcast →Want the deep dive?
This page gets you pointed in the right direction. When you're ready to go all the way — documentation, seasoning, exit strategy, terms, and the full glossary — read our flagship guide.
Read the Complete Guide to Note Investing →Note investing — common questions
How much money do I need to start note investing?
Some investors begin with as little as $5,000–$10,000 by buying a partial note or a performing note, while whole non-performing notes often require $25,000 or more. The real prerequisite is knowing how to evaluate a deal before you buy.
Is note investing passive income?
Performing notes are close to passive — a loan servicer collects the payment and you receive monthly income. Non-performing notes are more active because they require a workout, so they sit between passive investing and a part-time business.
What's the difference between a note and a mortgage?
The promissory note is the borrower's promise to repay the loan; the mortgage (or deed of trust) is what secures that promise with the property. You invest in the note, and the mortgage is the collateral standing behind it.
Do I need a license to buy mortgage notes?
It depends on your state. Some states require a license to buy or hold mortgage notes, while others don't — and originating or servicing loans adds federal rules like Dodd-Frank and the SAFE Act. Because the requirements vary by state and change over time, always check your specific state before you buy. We break down note-buying licensing on our podcast, the Real Estate Notes Show.
Can I invest in mortgage notes with a self-directed IRA?
Yes. Many investors buy notes inside a self-directed IRA or 401(k) to earn tax-advantaged income. You use a self-directed custodian, and the note is held in the retirement account's name rather than your own.
What's the difference between a 1st and 2nd lien note?
A 1st lien is first in line to be paid if the property is sold or foreclosed, which makes it the safer position. A 2nd lien sits behind the 1st, carries more risk, and trades at a bigger discount. JKP buys both, with 2nd liens considered case by case.
How do I find mortgage notes to buy?
Notes are sold by banks, hedge funds, loan servicers, and note exchanges, and through relationships with other investors. New buyers often start on a note marketplace or through an established buyer's network before going direct to sellers.
Is now a good time to invest in mortgage notes?
Higher interest rates and tighter bank lending have pushed more notes onto the secondary market in recent years, which means more inventory for buyers. As always, the opportunity is only as good as your due diligence on each specific note.
