How Mortgage Note Investing Helps Real Estate Investors Ditch Landlord Headaches

Fred Moskowitz (00:00)
The distinctions though with investing in mortgage notes is you don’t need to own the property. And so the responsibilities of maintenance, managing the rental, dealing with tenants, liability, all of those things do not fall to the lender. You are stepping into the shoes of the lender. And so think about this.

If you own your own home, right? When the water heater has to be replaced or the roof has to be repaired, you don’t call up the lender and tell them, hey, we need a new roof or we need this maintenance or repair.

Scott Bursey (02:12)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host Scott Bursey and man, man, are we bringing the heat today? We’ve got a powerhouse in the studio, a true expert who helps investors sidestep the typical landlord headaches and find the high yield opportunities in the note space. Fred Moskowitz is in the house. Fred, welcome to the show.

Fred Moskowitz (02:34)
Thank you, Scott. It’s great to be here.

Scott Bursey (02:36)
It is awesome having you here and for those of our listeners who are not familiar with your journey, please tell us how did your career began and what is your main focus now?

Fred Moskowitz (02:45)
Yeah, thank you. My journey is somewhat untraditional. I started out having a very long and successful career working as a computer engineer, working at different tech companies and startup companies. And one thing that happened was after I watched the entire industry get flipped upside down because we had the bursting of the dot-com bubble. Do you remember that?

And that was immediately followed by the September 11th terrorist attacks. And through all that turmoil and chaos that was going on at that time, I realized that I was way too dependent on the income for my job. And even though I loved the work I was doing, it was a job that was just full of all these circumstances completely out of my control.

And what I learned was that no matter how good of an engineer I was or how valuable of an employee I was, if things were not going well in the industry or at the company I was working in, that I could lose my job through no fault of my own. And so I came to this realization that I needed to have other sources of income so that I wouldn’t be so dependent on the paycheck for my job.

So this is what got me interested in investing in alternative investments where we typically go out, we buy and build assets and those assets generate income for us. So no matter what work we’re doing or what other activities we’re doing, we always have these assets that creating passive income for us. And that’s been

huge focus for me over the years and this is what has led me to investing in mortgage notes where it’s a specialized area of real estate investing and the big distinction here is that instead of owning the property we own the mortgage note which is the debt against that property and we can generate cash flow from that.

However, we don’t have to own the property. We’re not responsible for maintaining it or managing it or any of those things. And so it’s a really unique area of real estate investing and it can be a really powerful strategy.

Scott Bursey (06:01)
Absolutely, and thank you for sharing that. Fred, what caught my attention about you was the way you’ve been able to bridge the gap between complex financial engineering and everyday wealth building. Could you tell us about your book?

Fred Moskowitz (06:13)
Yeah, absolutely.

put together a lot of the knowledge and expertise that I’ve built up over the years because something interesting was happening. I started doing a lot of speaking and education, speaking at different conferences and events, and people were always asking me, hey Fred, do you teach? Do you do education?

Do you have any courses and all of these things? And then I realized that there was a huge demand that it made sense to write a book. I decided to write a book this way I could share my message with a much wider audience. And so the book is called The Little Green Book of Node Investing and it provides a high level overview of this fascinating industry and investment strategy.

So for someone that’s just learning about node investing for the first time or maybe you’ve had a lot of experience as being the borrower on a mortgage but wanted to learn, how can you be the lender? Well this book really is what brings that knowledge forward. We talk about how the secondary mortgage market works. Why do banks sell loans?

how to analyze loans, where to find them, how to perform due diligence, as well as managing the portfolio. And also, there are two chapters dedicated to one of the most important topics that I feel is areas to focus on, which is how to invest in mortgage notes utilizing your retirement account funds. It’s a great strategy. A lot of people don’t know about that.

And it can be really powerful because it gives you a way to access capital that you already have in your possession and control. And now you can put that towards node investing, which can be a great strategy because of the wonderful tax benefits realized from utilizing those accounts, whether it’s a Roth IRA or

traditional IRA or 401k there’s all these strategies that you can use and so this is all covered in the book and it gives a good introductory level overview for someone that’s learning about this for the first time

Scott Bursey (08:38)
Thank you for that breakdown Fred and Fred our listeners are going to want to know what is the single biggest advantage of investing in residential mortgage notes over acquiring rental properties?

Fred Moskowitz (08:50)
Yeah, great question. Both strategies are great in general.

The distinctions though with investing in mortgage notes is you don’t need to own the property. And so the responsibilities of maintenance, managing the rental, dealing with tenants, liability, all of those things do not fall to the lender. You are stepping into the shoes of the lender. And so think about this.

If you own your own home, right? When the water heater has to be replaced or the roof has to be repaired, you don’t call up the lender and tell them, hey, we need a new roof or we need this maintenance or repair.

Lender has nothing to do with that. So those responsibilities fall to the homeowner and the lender is receiving the monthly loan payments every month.

Now the other benefit is that the lender secured on title. The lender secured on title and so that provides a lot of downside protection. Now some people prefer to own the property and be very involved, very hands-on, which is fine. That’s great, but it’s not for everyone. I talk to a lot of investors, Scott, and they tell me that

hey Fred, I like the idea about real estate, but managing properties is not for me or I’m too busy. I don’t have time for that. so node investing can offer a lot of benefits and can be a better fit for someone like that. Now, one thing that I like about Mortgage Notes is we invest nationwide. We buy loans all over the country and

really set up well to be able to do that. With properties you may be restricted to your local market or that’s logistically what’s going to work for you and so you’re

diversification is a lot less there. So those are some of the examples, but each one has its pros and cons. And what’s important is to understand what those are, learn about that, and then you can decide what’s best for your personal situation. And for many people, both work well. You can do both, sure.

Scott Bursey (11:47)
And Fred, you could walk us through what is the most common hidden risk or blind spot new note investors overlook.

Fred Moskowitz (11:54)
Big risks, I would say, are buying a note without performing a full due diligence on it. And so, you have to understand how to approach your due diligence, takes up several areas. You’re evaluating the borrower, the history on the loan, the collateral. You’re evaluating some of the legal aspects of a note.

Is the note valid? Is this a valid lien? Is it enforceable? And maybe you need to have an attorney provide guidance to you on some of those things. But those are the big areas. But I would say the best way to manage those risks, work with someone that’s experienced. Someone that can provide guidance, counsel to you.

You may need to hire an attorney to help you the first couple of times and that’s okay. That’s money very well spent. They’ll help you evaluate your deal before you buy it, not after, right? And that’s going to help you a lot. And working with competent professionals and vendors in the space that will support you, you can’t do everything yourself.

So you need to have a team around you of advisors, vendors, and service providers to help you make the right decisions and protect your portfolio, protect your assets that you’re putting your hard-earned money into.

Scott Bursey (14:06)
Where do you see the biggest opportunity right now, Fred?

Fred Moskowitz (14:09)
The biggest opportunities I’m seeing right now in residential notes, it’s just in the secondary market, there’s a liquidity crunches that come up and when that happens, the banks, lending institutions, the hedge funds, the note funds, they sell off notes. And so for us as buyers,

There’s additional product out there and so there’s great opportunities. I’m seeing a lot of great opportunities over the past number of months and I have a feeling that that’s going to continue to increase as time goes on.

Scott Bursey (14:43)
And as you see it, Fred, what external economic threat currently poses the greatest risk to the stability of the non-performing note sector?

Fred Moskowitz (14:52)
Well.

I would say the biggest risk that happened for that is, and this goes for non-performing and performing. I like to focus on the performing sector, but both are impacted. It’s by geopolitical activities, right? Geopolitical threats that can impact the economy, can impact jobs, can impact liquidity in

world markets and these are areas that we have we should watch carefully because ultimately if jobs are impacted or some circumstance comes up that reduces jobs, creates more unemployment, that’s going to cause more distress in the real estate market and the mortgage market as well overall and the economies.

Right? Your local economy gets impacted because unemployment is up. Inflation, costs of goods is increasing, all of these things. And so those are some of the big, big impacts. And we can’t control how these outcomes are, but what we can control as investors is the things we focus on and what we do about it and how we

redirect our decisions and business moving forward.

Scott Bursey (16:08)
And Fred, given all of your experience, what advice can you leave with our listeners here today?

Fred Moskowitz (16:14)
Leading here today, I would say education is always the place to start. Get educated. There’s so many books, resources, podcasts available, videos on YouTube. Pursue the area you want to get knowledgeable about and start with that. You can begin your education at very low cost. doesn’t, you don’t have to spend a lot of money.

start there and then when you go beyond that, start to build out your relationships. Connect with people that are successful leaders in the industry you’re in. Attend events, attend conferences, show up in person preferably and start to build out those relationships because no matter what area of investing you’re in or what business you’re in, the relationships you have

are going to be one of the most powerful assets that you own and control. And so invest in that every day. That’s something that I personally dedicate time every day towards building and nurturing relationships. And especially for us in the note business, everything is relationship based. And so this leads to

deal flow to opportunities to business relationships, partnership relationships, all of these areas. And so it’s something that I feel very strongly about putting dedicate time and energy every single day. It’s a non-negotiable for me.

Scott Bursey (17:47)
Fred, this has been an incredible conversation packed with pure value. And for our listeners who want to follow your journey or collaborate with you, what’s the best way for them to reach you?

Fred Moskowitz (17:58)
Yeah, best way to reach me is connecting on my website which is FredMoskowitz.com and if you prefer a little bit of an easier spelling you can go to giftfromfred.com it’ll take you right to my website you can connect with me there send a message or ⁓ request

special my special report on node investing that is totally free I’m happy to send that out just put your information in and we’ll email that to you and one thing I always love is connecting with investors so feel free to reach out and learn a little bit about this amazing asset class more hitch notes

Scott Bursey (18:41)
Thank you for joining us today, Fred.

Fred Moskowitz (18:43)
Thank you, Scott. It’s been a great conversation today.

Scott Bursey (18:46)
And to our listeners, we appreciate each and every one of you. If you got value from today’s episode, please subscribe. We’ve got a lineup of exceptional guests, just like Fred, who are making huge moves in the market. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.