Real estate investing doesn’t always mean owning houses, managing tenants, or swinging hammers. Some of the most profitable investors in Southwest Michigan make money without ever collecting rent or fixing a roof. Instead, they invest in mortgage notes — the debt secured by real estate.
When you buy a mortgage note, you become the bank. The borrower pays you. The property secures your investment. And if structured properly, note investing can create strong returns with less competition than traditional property investing.
This guide breaks down exactly how investors in Southwest Michigan make money buying and selling mortgage notes, how to find deals, how to evaluate risk, and how to turn distressed debt into profit.
What Is a Mortgage Note?
A mortgage note is the legal promise a borrower signs agreeing to repay a loan used to buy real estate. It includes:
- Loan balance
- Interest rate
- Monthly payment amount
- Loan term
- Late penalties
- Legal rights of the lender
The mortgage (or deed of trust) ties that promise to the property. If payments stop, the lender can legally enforce their lien.
When investors buy mortgage notes, they are buying the right to receive the payments, not the house itself — at least not at first.
Why Note Investing Works Well in Southwest Michigan
Southwest Michigan offers a unique environment for note investing:
🏠 Affordable Property Values
Compared to large metro areas, home prices in many Southwest Michigan communities are lower. That means:
- Smaller loan balances
- Easier entry for investors
- Lower downside risk if foreclosure becomes necessary
👷 Blue-Collar & Workforce Housing Markets
Many homes are owner-occupied properties financed with modest mortgages. Borrowers often want to stay and work out payment plans rather than walk away.
🏡 Older Housing Stock
Older homes sometimes lead to financing challenges with traditional lenders. That opens doors for:
- Seller financing
- Private lending
- Creative note opportunities
🌊 Mixed Market Types
The region includes small cities, rural areas, and lakeshore communities — creating varied note opportunities from entry-level housing to seasonal properties.
The Two Types of Notes You Can Buy
Performing Notes (PNs)
The borrower is paying consistently. These are ideal for:
- Passive income
- Predictable cash flow
- Lower risk
You buy the note at a discount and collect monthly payments with interest.
Non-Performing Notes (NPNs)
The borrower has stopped paying or fallen behind. These offer:
- Bigger discounts
- Higher potential returns
- More active management
With NPNs, profit often comes from loan workouts, not foreclosure.
7 Ways Investors Make Money With Mortgage Notes
1️⃣ Buy at a Discount, Earn the Spread
If a $90,000 note is purchased for $65,000, the built-in equity creates strong yield.
2️⃣ Monthly Cash Flow
Performing notes pay consistent monthly income like a rental — without tenants or repairs.
3️⃣ Re-Selling the Note
After seasoning a note (showing a payment history), investors often sell it to other buyers at a higher price.
4️⃣ Loan Modifications
Adjusting terms to help borrowers resume payments can increase the value of a distressed note significantly.
5️⃣ Partial Note Sales
Sell part of the future payments to recover capital while keeping long-term income.
6️⃣ Discounted Payoffs
Borrowers sometimes pay a lump sum to settle the debt, creating immediate profit.
7️⃣ Property Acquisition (Last Resort)
If all else fails, foreclosure may lead to acquiring the property at a deep discount.
Step-By-Step: How To Buy Mortgage Notes in Southwest Michigan
Step 1: Define Your Investment Criteria
Decide:
- Performing vs non-performing
- Occupied vs vacant
- Property value range
- Target return
- Risk tolerance
Step 2: Find Note Sources
Notes are sold by:
- Small banks & credit unions
- Hedge funds
- Private lenders
- Seller-financed property owners
Networking and note broker lists are common deal sources.
Step 3: Review Note “Tapes”
A tape is a spreadsheet showing:
- Property address
- Loan balance
- Payment amount
- Status
- Asking price
Filter for Southwest Michigan locations and properties that fit your buy box.
Due Diligence: Where Smart Investors Win
📍 Property Value
Never rely on seller estimates. Use conservative comps and assume “as-is” value.
📜 Title Position
Confirm the note is in first lien position.
🧾 Taxes
Back taxes can wipe out profits. Always verify tax status.
🔥 Insurance
Ensure hazard insurance is active to protect the asset.
📂 Loan Documents
Review note, mortgage, assignments, and payment history.
👤 Borrower Profile
Payment history tells you more than promises.
Pricing a Note Properly
Performing Notes
Price based on:
- Desired yield
- Loan-to-value ratio
- Payment history strength
- Remaining term
Non-Performing Notes
Price based on:
- Estimated property liquidation value
- Legal and servicing costs
- Foreclosure timeline
- Workout probability
Beginners should be conservative. The profit is made when you buy right, not when you sell.
Managing Notes After Purchase
Professional loan servicers handle:
- Payment collection
- Escrow management
- Tax tracking
- Borrower communication
- Legal compliance
This protects you and creates a professional borrower experience.
The Workout Strategy: Helping Borrowers = Profits
Most non-performing borrowers want a solution, not a fight. Options include:
- Repayment plans
- Loan modification
- Temporary hardship forbearance
- Discounted payoff
- Deed-in-lieu of foreclosure
Re-performing a loan often creates far more value than foreclosure.
Major Risks in Southwest Michigan Note Deals
⚠️ Overestimating property value
⚠️ Ignoring delinquent property taxes
⚠️ Buying notes without full documentation
⚠️ Underestimating legal timelines
⚠️ Skipping professional servicing
Conservative numbers protect investors when markets shift.
Example Scenario
- Property Value: $110,000
- Note Balance: $78,000
- Payment: $725/month
- Borrower Occupied & Paying
Investor buys note for $60,000.
That creates:
- Immediate equity cushion
- Strong monthly yield
- Option to resell later at a profit
Why More Investors Are Turning to Notes
Mortgage note investing offers:
✅ Passive income potential
✅ Lower competition than house flipping
✅ Flexible exit strategies
✅ Built-in collateral protection
✅ Less hands-on management
In markets like Southwest Michigan, where homes remain relatively affordable and borrowers often prefer to keep their homes, note investing can provide steady, predictable opportunities.
Getting Started the Right Way
New investors should:
- Start with performing notes
- Partner with experienced buyers
- Use professional servicers and attorneys
- Stay conservative with valuations
- Never rush due diligence
Final Thoughts
Mortgage note investing in Southwest Michigan offers a powerful alternative to traditional real estate strategies. Instead of managing tenants, repairs, and vacancies, investors can generate income by owning the debt secured by property. When notes are purchased wisely — at the right price, with proper due diligence, and a clear exit strategy — they can deliver steady cash flow, strong yields, and multiple profit paths, from loan modifications to discounted payoffs and resale opportunities.
The key to long-term success is staying conservative, understanding local property values, and focusing on solutions that help borrowers whenever possible. In many cases, the most profitable outcomes come from working with homeowners, not against them. With the right approach, mortgage note investing can create win-win scenarios that benefit both investors and families who want to keep their homes.
If you’re interested in learning more about note opportunities in Southwest Michigan or want to discuss selling a mortgage note you currently hold, I Buy SW MI is here to help. Visit our Contact Us page to start a conversation and explore your options today.