TFG Commercial Property Briefing: Mortgage Notes Explained

Commercial property is tricky business, when companies look to buying or selling property, commercial real estate purchase is often much more difficult.

What is a mortgage note?

A mortgage note is an alternative option for buying or selling commercial property. A mortgage note is essentially a promissory note which is secured by a stated loan agreement. They can either be privately held or financed through a traditional lender such as a bank or credit union.

One significant advantage of buying or selling a mortgage note provides is that it’s often cheaper.  This is because the usual fees incurred by going through banks and real estate agents can be avoided. There are several beneficial reasons to buy or sell mortgage notes.

Real Estate and Trump

Increases Working Capital and Cash Flow

Selling a mortgage note is an easy way to get a large amount of cash relatively quick, and there are no restrictions on what this money can be used for. The funds can be used for paying off debts, medical expenses, college tuition, or injecting more cash into one’s retirement. 

It’s a great way to create capital for a business venture or even cash out one mortgage note to buy a better piece of real estate. Selling a mortgage note gets you the cash you need to do almost anything.

Straight Forward Process for Commercial Property Owners

Selling a mortgage note is a relatively simple process. Many companies specialize in this exact thing. Most of them have it set up where the seller can get an online offer. After forms are filled out and the usual legal checkmarks are done, the payment is made in full. These companies do all the heavy lifting while the seller decides whether or not to accept the offer.

Increased ROI

Buying a mortgage note is popular for many investors right now. The notes often offer a better return on investment that a saving’s account or bonds due to years of low-interest rates. 

One way this works is that investors can buy a mortgage note at a discount from a bank or from an individual, and collect payments. 

There are two types of mortgage notes buyers will typically look at. The most popular is a performing note, which is one where the mortgage payments are being made on time and consistently and the property is in good condition. The other is a non-performing note which covers foreclosures and property that may be neglected.

The process of buying one will require a significant amount of liquid assets.  Anyone selling a mortgage note will most likely want that large lump sum of cash. Whatever the choice is, the buyer should take time to assess the risk.

Conclusion

As with all investments that businesses can make, mortgage notes are one of many which carry risks to a business.