Finance & Capital

The process of recording, reporting, and analyzing the financial transactions of a business, including amortization, loan balance, payment history and billing information.

Money owed, generally used in business and not personal finance, usually representing payment due for services or materials.

A qualification for sophistication — an individual with a net worth exceeding $1 million or income exceeding $200,000 in recent years.

Capital is cash or liquid assets available for investment. In mortgage note investing, capital refers to the funds an investor can deploy to purchase loans — whether sourced from personal savings, self-directed retirement accounts, private lenders, joint venture partners, or institutional credit facilities. The amount and source of an investor's capital directly shapes their deal flow, pricing power, and position in the secondary mortgage market.

Cash-on-cash return measures the annual pre-tax cash income generated by an investment divided by the total cash invested, expressed as a percentage. In mortgage note investing, it is the primary metric for pricing performing and re-performing loans, allowing investors to work backward from a target yield to determine the maximum purchase price for a cash-flowing note.

An entity is a legal business structure — such as an LLC, corporation, or trust — that exists separately from its owner for purposes of liability, taxation, and regulatory compliance. In mortgage note investing, operating through a properly formed entity is essential for protecting personal assets from claims arising from loan ownership, establishing credibility with sellers, and meeting state licensing requirements.

A member of a partnership that has the authority to make decisions for the partnership and shares in profit and loss.

Gross return is the total income or profit generated by a mortgage note investment before deducting expenses such as servicing fees, legal costs, title search fees, and other holding costs. Comparing gross return to net return reveals the true cost of operating the investment and is essential for accurate deal analysis and portfolio management.

A high-interest loan originated by private individuals based primarily upon the property equity.

A hedge fund is a pooled investment vehicle structured as a private partnership, managed by professional fund managers who deploy investor capital into alternative assets — including mortgage notes. In the secondary mortgage market, hedge funds are major buyers of non-performing loan pools from banks and government-sponsored enterprises, and they are a key source of downstream inventory for individual note investors.

Leverage in mortgage note investing is the strategic use of borrowed capital to increase the total assets under management and amplify returns on invested equity. By combining lower-cost debt — such as bank credit lines, debt facilities, or private loans — with an investor's own equity, leverage reduces the blended cost of capital and allows note investors to deploy more buying power than their cash alone would permit.

A loan where an owner uses equity in their property as collateral for a loan which permits the draw of funds up to a preset amount.

Liquidation is the process of converting an asset into cash, either through sale or disposition. In mortgage note investing, liquidation refers both to a note holder's exit strategies — such as foreclosure, REO sale, or note sale — and to institutional sellers liquidating distressed loan portfolios, which is a primary source of deal flow for note buyers.

The relative speed of converting an asset to cash, notes are typically a less liquid asset than other more commonly traded.

Loan-to-value (LTV) is the ratio of a single loan's unpaid principal balance to the current fair market value of the property securing it, expressed as a percentage. LTV is one of the primary metrics note investors use to assess collateral coverage, price assets, and evaluate risk — a lower LTV indicates more equity protecting the lien holder's position, while a higher LTV signals thinner coverage and greater exposure to loss.

Evidenced requested by brokers and loan-sellers to qualify yourself as a capable buyer.

Return on investment (ROI) measures the total profit or loss on a mortgage note investment as a percentage of the capital invested. In note investing, ROI is the simplest metric for evaluating deal performance after resolution, but it does not account for the time required to earn that return — which is why experienced investors use ROI alongside time-weighted metrics like IRR and cash-on-cash return.

A self-directed IRA (SDIRA) is a retirement account that allows the account owner to invest in alternative assets — including mortgage notes — rather than being limited to stocks, bonds, and mutual funds. For note investors, an SDIRA provides tax-deferred or tax-free growth on note income, effectively allowing the investor to "be the bank" inside a tax-advantaged wrapper. The account is administered by a specialized custodian who handles compliance and documentation.

Velocity of money in mortgage note investing measures how quickly an investor can cycle capital from acquisition through resolution and back into the next deal. Higher velocity means the same pool of capital earns multiple spreads per year, dramatically increasing annualized returns compared to a long-term hold strategy.

Form used to obtain a tax identification number for an individual or entity.