The Best Way to Invest in Real Estate in 2020 | This Investment Strategy Could Make Millions | Making of a Millionaire

Most Investors are About to Miss the Biggest Opportunity of the Decade

Photo by Kayle Kaupanger on Unsplash

But it’s about to happen again, and most investors aren’t even aware it’s happening.

Mortgage note investing isn’t a super popular way to invest in real estate. Housing flipping, wholesaling, rental real estate almost always get the spotlight. But this niche investment strategy is about to see an investment opportunity that will rival the great depression.

Millions of loans are delinquent

Recessions are a natural part of our economic cycle. There are years of growth and expansion and years of slowdown and stagnant production. What isn’t normal, however, is the extent of the crises we’re experiencing. The coronavirus pandemic has left millions of American’s unemployed and unable to pay their rent or mortgage. The government acted swiftly, offering certain protections through mortgage and rent moratoriums while extending forbearance plans to borrowers in need. But despite these efforts, an estimated 2.2 million people are seriously delinquent on their mortgage, and an additional 2.7 million borrowers are in some stage of forbearance.

Government action won’t put off the inventible

Right now, quantitative easing, which is the gradual influx of money into the financial and bond markets in addition to Fannie Mae, Ginnie Mae, and Freddie Mac purchasing loans in forbearance, banks have been able to skate by despite high default rates. But this won’t last forever. Eventually, the lending institutions will reach a tipping point where it’s no longer sustainable to hold the defaulted debt and are forced to sell the delinquent loans on the secondary market.

How mortgage note investing works

When you invest in mortgage notes, you don’t invest in physical real estate itself, but the debt securing the real estate. When a loan is sold, the buyer steps into the shoes of the lender, having full rights to collect the remainder of the mortgage or pursue alternative actions to collect the debt, which can include forbearance, modifying the loan, or foreclosing. If you get the borrower repaying, you now have a passive income stream in the form of principal and interest payments. If you gain access to the real estate, you can sell the property as-is, fix it up, or hold it as a rental, among other strategies.

Tremendous upside

To give you a real-life example of how big the profit margins could be, here’s a real example of a non-performing mortgage I purchased secured by a single-family home in 2016. The balance on the loan was $150,000 with a principal and interest payment of $811. I estimated the property value in its current condition to be around $90,000, and I purchased the loan for $37,000 (24% of the loan balance and 41% of the property value).

Opportunity is coming

Hundreds of millions of dollars worth of non-performing loans were sold at steep discounts from 2011–2016 and continue to be sold today. While discounted prices have increased steadily over the past decade as the economy and mortgage crisis recovered, there is still tremendous opportunity for real estate investors. But only those that are informed and prepared for the opportunity will profit.

Real estate investor, Millionacres writer, & full-time RVer sharing my travels on Youtube @eatseerv. I focus on all things real estate & entrepreneurship.