Is it true that purchasing mortgage notes is a source of passive income?

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Good question.

Yes, purchasing mortgage notes can be a source of passive income but it is not totally passive. It is far more passive income than owning a rental property but it still is not purely passive income.

During the initial investment on purchasing a mortgage note you have to really go through several things that determine the value of the note to make sure you are getting the note at a good price.

There are several things that determine the value of a mortgage note that have to be taken into account.

1. Buyer
Borrower's Credit
Get SS # , and payment history

Get a loan application 1003 , W2s, 1040s and verify information. Get income tax returns. Is the buyer’s employment stable? How much was the buyer’s down payment?

2. Collateral

3. Down Payment
Consider rehab work
Buyers credit = cash down

4. Terms
Interest Rate
Time Remaining

5. Seasoning History
How many payments has the borrower made?

6. Paperwork
Title
COMPLIANCE WITH DODD FRANK IF OWNER OCCUPIED. DODD FRANK SAFE ACT
Dodd Frank does not apply to 2nd homes, investors and more than 4 unit buildings.
Legality,
Loan Documentation

Once you purchase the note and place it with a servicing company, then, yes, largely notes are passive but there is a lot of work in valuing them before you purchase them.

I hope that helps and good luck with your investing!

Benjamin Z Miller