Currency investing confuses most people because it sounds like forex trading. It’s not. As someone who’s bought and sold promissory notes for years, I’ve watched friends assume this was some exotic trading strategy when really it’s closer to being a small-time bank. Here’s how it actually works.
What You’re Actually Buying
A “note” in this context is a debt instrument—someone’s written promise to pay money back with interest. When you buy a note, you become the creditor. The original borrower now owes you instead of whoever originated the loan.
That’s what makes this endearing to certain types of investors—you’re not speculating on price movements. You’re collecting payments that someone already agreed to make.
The Main Types Worth Knowing
Mortgage notes are tied to real estate. When someone finances a home purchase, they sign a note promising to repay. Buy that note, and the monthly mortgage payments come to you instead of the original lender. The property serves as collateral.
Promissory notes are more general—one party owes another money, simple as that. These can be secured by collateral or not. Unsecured notes carry more risk but often pay higher returns. I’m apparently one of those people who sleeps better with collateral backing things up.
Corporate and municipal notes work similarly but get issued by larger entities. More regulated, often more liquid, different risk profile.
Where the Money Actually Comes From
Interest payments are the straightforward part. The note specifies an interest rate, and you collect that percentage annually on whatever balance remains. Predictable income stream as long as the borrower keeps paying.
Buying at a discount is where things get interesting. Banks and lenders sometimes want notes off their books. They’ll sell a $100,000 note for $85,000 if they need liquidity or if the borrower’s been problematic. You collect the full $100,000 in principal repayments plus interest, but you only paid $85,000. That spread can dramatically boost your effective yield.
Selling when conditions improve works too. If interest rates drop or the borrower’s credit improves, your note becomes more valuable to other investors. Sell for more than you paid.
The foreclosure angle exists but isn’t the goal. If someone stops paying a mortgage note you hold, you can foreclose on the property. Sometimes you recover your investment plus more. Sometimes it’s a nightmare of legal fees and maintenance costs. I’ve done it once and prefer not to repeat the experience.
The Risks Nobody Mentions in the Sales Pitch
Default is the obvious one. People stop paying. Unsecured notes leave you with limited recourse—you’re essentially suing someone who already couldn’t make their payments. Even secured notes involve foreclosure processes that take months or years depending on the state.
Liquidity is the other problem. Notes don’t trade on exchanges. Selling one means finding a buyer, negotiating terms, potentially taking a haircut to move quickly. This isn’t like dumping stock.
Getting Started Without Getting Burned
Brokers specialize in note transactions. Real estate investment groups sometimes pool capital for larger note purchases. Online platforms have emerged in recent years connecting buyers with note sellers.
Whatever route you take, learn to evaluate borrower creditworthiness and collateral value before writing checks. A financial advisor or attorney who specializes in this area is worth the consultation fee early on. The learning curve is real, and mistakes get expensive.
