Mortgage note investing is often an overlooked gem in the world of passive income. Host Chris Seveney dives into this unique investment strategy, breaking down why it stands out in 2025’s high-interest-rate environment. Discover how mortgage notes offer consistent cash flow, reduced volatility, and entry-level affordability compared to traditional investments. Chris also shares personal insights from his years of experience, highlighting the benefits, misconceptions, and key steps to get started with this particular investment. Whether you’re new to investing or looking to diversify your portfolio, this episode offers practical tips on making mortgage note investing work for you.

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Mortgage Note Investing: Unlocking Passive Income Opportunities

What Mortgage Note Investing Is And Its Role In Passive Income

In this episode, I want to talk to you about hidden gems for passive investors in 2025. For those who have not tuned in in the past, thank you for joining us. For those who have been here, thank you for continuing your support. Let’s first talk about what mortgage note investing is and its role in passive income. There are two main types of mortgage note investing I’ll talk about, which is private lending. It means you originate the loan, do all that due diligence, and then give somebody money where they give you those payment streams.

The other is buying loans on the secondary market as an investor. This is the hidden gem that people didn’t realize existed. There’s this entire market out there of people who have loans that look to sell them and you can acquire them on a secondary market, which is buying a loan from me, for example. Oftentimes, you can get it at a slight discount, which can enhance some of your returns.

Why Mortgage Notes Are A Hidden Gem

I started at note investing in 2016. I’ve been in real estate for twenty years approximately, and I didn’t know this existed. I was upset about it. I was like, “Why didn’t I know this existed?” The other thing I want to mention is why is this topic relevant for today’s investors. If you’ve tuned in to the last episode, I talked about some of the avenues to get in 2025. Interest rates and property values are at all-time highs. Other avenues of real estate are very challenging. The popularity of lending in a high interest rate environment when property values are high has more appeal. We’re seeing more and more people get involved in doing this.

As we move into the next segment, I want to make sure people understand what mortgage notes are before we dive too deep. For anyone who has owned a house and did not pay 100% cash, you got money from a bank. A bank gives you two documents. I didn’t realize there were two documents. One is the mortgage and one is the note. The note is a three-page document that says, “I owe you. I’m borrowing $250,000 and I’m going to pay you $1,000 a month for the next 30 years at 6% interest.” I’m just making numbers. I know that payment is higher than that.

Mortgage is an important piece too. Mortgage is the ball and chain that secures that note. I share this because it’s a common misconception about notes and the note holder that it can only be a bank, which is incorrect. You’ve heard the term seller financing. The other is the mortgage piece and component, making sure the borrower doesn’t just say, “I’m using this for this property.” You need that signed document.

I’ll share an example where somebody lent somebody $500,000 or some real estate acquisitions but they never got a mortgage to secure that money to those properties. The guy bought the property. He went and got bank loans as well from those properties. He kept the money. Who knows what he did with it? It’s like a credit card.

Why Mortgage Notes Are Overlooked

When you don’t secure it, it doesn’t attach to anything and everything can move in front of you. There’s very limited recourse. I wanted to share that piece of information because it also leads to part of the next thing which is why mortgage notes are overlooked. People think it’s extremely hard and challenging. There is a lack of education. I 100% agree that there is a lack of mainstream education on this asset class.

The education that’s out there is typically high-expense gurus who talk a good game but are typically failed investors. A lot of their education isn’t on how to manage, underwrite, and go through this asset class. It’s all about marketing. “Where can you find notes? Where do you get them? How do you use LinkedIn to find mortgage notes? How do you use XYZ to find mortgage notes?” They make it sound and give you the perception that it’s extremely complex. You’ve got to go to them because they’re the only way to teach you.

I’ll be honest, I have a membership group with a dozen people in it. The one thing I typically tell people is finding assets is easy. The problem is people don’t like the ones they’re finding because everyone goes from the same sources. They spend way too much time and effort trying to find a needle in a haystack. They have billions of dollars a month in assets. I share those lists with people. People can get on those lists as well. A lot of times, everyone else is seeing this so I want to try and find one that’s a niche or something interesting. Oftentimes, it gets overlooked.

It also gets overlooked because it’s an alternative investment. There are more traditional investments like stocks, real estate, and other asset classes. This also can lead to some conflict if the borrower stops paying like a tenant stops paying. It goes back to give some additional complexity and also is viewed as a high risk. Originating loans I view is a little more risky being a private lender than buying loans on the secondary market.

The Many Benefits Of Mortgage Note Investing

Anyone who ever watched any of our videos understands that we like to buy loans that are ten years old. If you want to get involved in notes, you look at those loans that have been around for a while. What happens over time? They pay down the principal and their equity goes up, which leads to the next thing I want to talk about. What are the benefits of mortgage loan investing? Why do you even want to do this? This is what it boils down to.

If you want to get involved in notes, look at those loans that have been around for a while. They pay down the principal and their equity go up. Share on X

Passive income is not an equity play. What I mean by that is when I buy real estate, I’m not in as much as the cashflow. I want that build equity so the value increases over time. Mortgage loans are the opposite. It’s a fact. They pay you back or pay down that loan but you should be getting consistent cashflow as part of it. I also view it as lower volatility compared to stocks and traditional real estate. It’s the example I like to use.

I use myself as an example. I’ve been in my house for ten-plus years. If home prices go up, they go down. Does that impact my paying my mortgage? Nope. If your real estate goes down, it could limit your exit strategy. Mortgage note boils down to a person’s ability to pay. What impacts their ability to pay is their jobs and financial situations. Another benefit is it does provide the opportunity for decent returns with risk-adjusted profiles.

What do I mean by that? You can buy loans or originate loans and get 8% to 12%, which is probably better than what you’re going to get in real estate for cashflow. You have the control and flexibility to choose the note or what you’re looking for. The analogy I like to use is you own nothing but control everything as the bank. Go drive through any major city. New typically owns the largest building bank. Why? You don’t own anything. They control everything.

They’re able to give out all different types of loans. Granted, they can create out of thin air, which is a whole nother topic. Being in that side of business, being a banker isn’t a bad thing. There are also risks and pitfalls within the space but they’re easily mitigated. What’s the number one pitfall everyone’s concerned about? What if this person stops paying? Why do you secure it to real estate?

If they stop paying, you have the real estate as collateral that you can go after. A lot of times, that all can be avoided or some of it, I shouldn’t say all, with due diligence and working with experienced professionals in the space who understand and know how to mitigate risk. Most of it is common sense. What do I mean by that?

I had someone who wanted us to give them a loan. We do some private lending as well. This person had a beautiful property, probably worth $900,000 down in Georgia, owes about $600,000, and needs financing quickly because they’re moving to Pennsylvania. Sometimes things don’t smell right. They don’t pass that sniff test. We ask a bunch of questions and they’re like, “We want to use private lending. We know we’re going to pay more but faster.”

I’ve seen situations where people have millions of dollars. Honestly, an extra $20,000 to them doesn’t matter. They’ll do whatever’s the fastest. Typically, homes are like this. It has me scratching my head when someone goes down that path. We did some due diligence and came to find out that the guy was in foreclosure last year. He missed his payments and blames everybody else. It’s not his fault. It’s his accountant, this person, and that person.

You look at it from the standpoint of it’s a very different situation but it was common sense. It didn’t pass the sniff test. Why is this person willing to pay an extra $20,000 in interest over the course of a year? Is it because of speed on a $600,000 loan? Was it $1,000 or $2,000? Would you pay $20,000 extra? Probably not. The other avenue that has risk in this space is diversification.

Here’s a big misconception. People think you need a lot of money to get into this space and that you have to buy expensive loans. I’ve had a $30,000 loan in the past on a $200,000 property. This was years ago so a $200,000 property is very different than it is now. It does have a lot of misconceptions in regards to getting into the space as well.

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We hope you’re enjoying this episode. We wanted to take a moment and tell you more about our Passive Income Fund at 7e, which is open to both accredited and non-accredited investors. Our latest offering targets an 8% annual return distributed monthly with the ability to potentially achieve a greater return through our bonus share program. If you’d like more information, reach out to us at Invest@7eInvestments.com to learn more. Thank you.

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A lot of times, when we start talking about mortgage note investing, they get intrigued like, “I want to do this. This is interesting.” People might have $50,000 sitting on the sidelines, which is enough to get into space and not want to go by a rental. It could be a condo or a townhouse that might not be as desirable. They might be in an area of California or certain parts of Texas or Florida. I’m in the Washington, DC area. A $50,000 down payment doesn’t get you far so what can you do?

How To Get Started In Mortgage Note Investing

When I talk about mortgage note investing and share the stories and everything that goes on, people get excited. I want to spend a minute and talk to people about how you get started in mortgage note investing. It all starts with education, research, resources, books, and free courses. YouTube is a goldmine. I’ve got hundreds of videos on YouTube. You don’t need to pay for an expensive course to get started. There’s plenty of information on mortgage note investing online.

Spend a minute to talk to people about getting started in mortgage note investment. It all begins with education, and YouTube is a gold mine. Share on X

When I got started, I was listening to podcasts. Someone was talking about all the people’s holiday time and they were thanking everybody. I paused and started writing down all these names. I started googling these people and then researching them. I was like, “This person does this. This person does that.” I set up phone calls with them. I got some free tips from them and asked them where also to go find more information.

I wrote down five names. Those five names each gave me two people. The next thing you know, I’ve got fifteen people I’ve talked to about where to get more information and also not spend thousands and thousands of dollars on it. That led me to network, attend conferences, and enjoy some investor groups. I did join a group. At the time, it was $50 a month. It wasn’t a lot.

My membership is $100 a month. It’s worth it. In any other group, that’s $100 a month. You’re spending $10,000 for a course or weekend flat out. You never going to learn anything in a weekend. You don’t even know if the stuff you’re writing down is the important stuff. It might be writing stuff down that you think is important but you missed the more important point.

They gave me an idea. It took me 6 to 8 months before I bought my first loan because I wanted to be educated. Some people say that’s analysis paralysis. I’m an engineer and I wanted to understand all the risks. I was taking money to use that I had saved and talked to my family about. “I want to go do this. I want to make sure I’d be successful at it.”

One of the major avenues that people also have to understand is this is not passive. The most important component is it can be at a period but when you get started, it’s not passive. You need to be active. Think about having a property manager managing a property. You still need to have involvement and make decisions. Note investing is better because you don’t worry about toilets, termites, and tenants. Roof leaks are not your problem.

 

Understand anybody who sells you on 100% passive is full of it. It’s not. The only passive way is if you were going to invest in a fund. We run funds for open to accredited and non-accredited investors. It starts with $5,000 as passive. You do your due diligence on us and invest. We send you emails on case studies and what’s going on but you have to lift a finger. The only finger you have to lift is when we email you your tax forms or you want some information. That’s what you have to read. It’s important to understand if you get started. It is not passive.

How Mortgage Notes Fit Into Your Portfolio

As we start to wrap up, I do want to roll in one last thing. I think it’s important because this is a question we get asked a lot too. People get excited about mortgage note investing. Here’s another reason why people should get excited. How does it fit into your portfolio? I’m a big proponent of having a diversified portfolio. What’s the difference between this and investing in oil and gas, a rental property, a REIT, and multifamily syndication?

The pros are barriers to entry. The cost is less. It is not as volatile, whether or not the interest rates, stock market, or housing pricing. If you underwrite a good loan and get a good down payment, the value of the home can go down but it shouldn’t have a significant impact. Interest rates. If you’re buying a loan at a discount, we target a yield. Let’s say we target more but I’m targeting 10%.

Interest rates go from 5% to 7%. You’re still at 10%. They go from 7% to 5%. You’re still at 10%. Good chance that person might refinance and pay you off, which isn’t a bad thing if you bought it on the secondary market at a discount. It is not to me as volatile or correlated to the stock market, which in 2024, freight returns in the stock market. My 401(k) is thankful for it. Do I think that’s going to continue? No. I believe that everything moves towards a mean and that’ll happen. If it does, what’s something to diversify that portfolio? Mortgage notes.

The other is something that people should need to be aware of. There isn’t any tax advantage in mortgage note investing. Granted, there aren’t the advantages but I think of it being non-correlated to other asset classes. I’d rather be non-correlated and not have the tax advantage. I saw someone who wanted to buy a property at a loss. They’re like, “I can depreciate it.” That’s dumb.

 

If I’m buying anything, I want to make money on it. I’m not going to buy something to lose money because I can depreciate it. I don’t think people understand that when you depreciate something, all you’re doing is deferring, meaning your basis goes down but when you go to sell, it’s based on that other basis. Eventually, you got to pay the piper back. A lot of people don’t understand that in real estate.

Why Mortgage Notes Are The Hidden Gem In 2025

You don’t have to worry about it. It’s interest income. If you’re buying a loan and investing in a fund, potentially it could have some advantages but talk to your CPA. If you go buy a loan or write one, it’s interest income so it’s stacked at ordinary income rates. Downside, positive. It’s not as volatile. To wrap up this episode and share the recap of why they are the hidden gem in 2025, I go back to non-correlated real estate prices, interest rates, and other asset classes. They’re out all on their own.

If you’re interested, I encourage you to do more research, go on YouTube, and listen to the old podcast that I had that’s called Good Deeds Note Investing Podcast. I shared a ton of stories. I can’t tell you how many webinars we’ve done on this topic. I’m also happy that you reach out to me. I’ll provide you with the resources and where to find the education.

To me, any type of education I provide, it’s not my business. That’s not where I get revenue. I enjoy helping people. Reach out. I’m happy to help you. If you also want to set up a call, feel free to reach out. I’m more than happy to set up a call with people as well. Any questions, feel free to reach out. You can go to 7eInvestments.com. I want to thank you for tuning in to this episode. I’ll catch you on the next one. Thank you, everyone.

 

Important Links

• Invest@7eInvestments.com
• Good Deeds Note Investing Podcast
• Christopher Seveney on LinkedIn