A Note Investing Strategy Wall Street Often Overlooks

Last Updated on June 22, 2025 by T.J. Fitzgerald

Since 1996, I’ve bought performing seller-financed notes—mortgages created when property sellers finance buyers. Wall Street skips these small, local deals for flashier portfolios. That’s your edge in 2025, whether you’re starting out or scaling up. Here’s how to make this strategy work, based on my 30 years in the trenches.

First, source notes from motivated sellers. Property owners who financed a sale often want cash now, not payments over 20 years. In 1997, I bought a $60,000 note from a Florida retiree for $45,000. It paid $1,200 monthly for a decade. Look for sellers through real estate attorneys handling owner-financed closings or title companies processing deeds. Platforms like Paperstac list notes, and local real estate investor groups are hotspots—sellers network there. In 2002, I found a $40,000 note at a Tampa meetup for $30,000, yielding 10%. Dig where others don’t.

Second, evaluate note quality. A performing note depends on the borrower and property. Demand at least six months of on-time payments, no gaps. Use county tax records or a broker’s price opinion to confirm the property’s value. In 2005, I passed on a note because the home’s value was shaky. Good call—it sold below the note’s balance in ’08. If the property’s worth $150,000 and the note’s $50,000, you’ve got a cushion. Use an HP 12C calculator to check yields. Numbers don’t lie.

Third, negotiate discounts. Sellers often accept 70–85 cents on the dollar for liquidity. In 2019, I bought a $100,000 note for $80,000, yielding 9%. Results may vary—note investing carries risks, including potential loss. Draft a note purchase agreement to lock in terms. In 2011, I overpaid $5,000 on a note, charmed by the seller’s story. It cut my yield by 2%. Stick to the math.

Fourth, manage risks. Even performing notes can falter—borrowers lose jobs, properties decline. Diversify across multiple notes and target those with strong equity. In 2001, a borrower in Ohio missed payments after a layoff. A six-month forbearance plan saved the deal, netting me 12%. Insure properties against hazards if possible. See our full disclaimer.

Fifth, systemize for scale. One note is a start; ten are a business. Use LoanServicingSoft to track payments and generate reports. Hire a virtual assistant for $15 an hour to handle title searches. In 2023, I managed 20 notes with half the effort by automating. In 2015, a late payment alert caught a borrower’s slip early, avoiding a default. Systems save time—time’s money.

This strategy demands work: sourcing, verifying, negotiating. Yields of 8–12% are possible, but results may vary. My mini-course breaks down finding, evaluating, and closing these deals. It’s 30 years of experience, no fluff. Sign up today. Fill out the opt-in form in the right-hand column to join. Inaction gets you nowhere.