There is an old joke about a ham and egg breakfast that says that the pig is committed but the chicken is merely involved.  The same approach applies for those seeking to prosper from real estate investing.  Those owning the actual property are "committed."  Those providing the financing for the real estate by lending the money through private mortgage notes are "involved."

 Being "involved" in real estate investing as a private mortgage note funder can be very lucrative.  Shaun Cohen, President of EquityBuild Finance, the funding unit of EquityBuild, a real estate investment firm, recommends that investors research the 12% return for private mortgage note deals.  

At 12% annually, the money invested in private mortgage notes doubles every six years.  That is a very nice return for being merely "involved" in real estate investing as opposed to being "committed" through the actual ownership.  There are many ways to prosper from private mortgage notes, too.

An individual can choose to fund a single transaction by lending the money to the buyer of the real estate.  That is the riskiest way to profit from private mortgage notes.  The entire deal rests on just a single borrower with one property.

There is a better way. 

A more prudent approach is take assume a passive position for the long term and invest with others in a capital formation that provides private mortgages for a variety of real estate deals.  That way those financing private mortgage notes can benefit from the protection of diversification in assets.  As shown by the returns registered by Cohen with EquityBuild Finance, passive, long term investing can be very lucrative in addition to being more advisable.

In addition to the returns, the flexibility of private mortgage notes is very attractive, too.  The terms for the private mortgage are structured completely by the lender and the borrower.  That allows for the funding parties to set the terms that best serve their needs.

If the private mortgage provider wants to limit the tax hit early, there can be interest only payments as investment income for however long is desired.  Should the private mortgage funder need a large sum of cash, there can be a balloon payment feature.  If the private mortgage issuer wants to participate in the rising price of the property being financed, there can be an "equity kicker" that allows for that to happen.  There can also be provisions increasing the mortgage rate should interest rates rise in the future.

To further increase the returns of the private mortgage note through limiting the tax exposure, it could be part of a retirement account,such as an Individual Retirement Account (IRA).  That way the income received from the private mortgage note will be tax free.  If the private mortgage note is sold for a profit, there will be no taxes on the gain if it is held within a retirement account.

Being "involved" in private mortgage notes can be very rewarding.  How the party funding the private mortgage note is "involved" can be very flexible, too.  These factors and more result in private mortgage notes being a very appealing way to profit from real estate investing.