High-net-worth investors are increasingly turning to mortgage note investing as a way to generate steady passive income with real estate–backed security. In this article, we’ll explain what mortgage note funds are, why accredited investors use them, the risks to understand, and how Labrador Lending’s Integrity Income Fund works.
The Income Strategy High-Net-Worth Investors Are Quietly Using
How accredited investors are leveraging mortgage note funds for stability, cash flow, and peace of mind
When market headlines scream volatility and traditional portfolios feel like a roller coaster, high-net-worth investors don’t panic — they pivot.
Behind the scenes, a growing number of accredited investors are reallocating capital into an often-overlooked strategy that delivers what most investments can’t in today’s economy: monthly income, security backed by real estate, and consistency.
Welcome to mortgage note investing — a time-tested approach once reserved for banks and institutions, now available to accredited investors seeking predictable cash flow and capital preservation.
What Is Mortgage Note Investing?
A mortgage note is the loan (the debt) secured by a piece of real estate. Instead of owning the property, you own the right to receive payments from the borrower. Funds in this space typically buy notes at a discount and manage them for cash flow and outcomes.
Key types of notes:
- Performing: Borrower is paying on time.
- Re-performing: Borrower was delinquent, now back on track after a modification or similar workout.
- Sub-performing: Borrower is making payments but inconsistently—often late, partial, or sporadic. These notes show signs of distress but are not fully non-performing, and may require active management, modification, or restructuring to stabilize cash flow.
- Non-performing: Borrower is not currently paying or is paying but has fallen behind; note holder or fund manager works toward workout options or pursues contractual remedies.
Why High-Net-Worth Investors Like This Strategy
- Income-first: Designed to generate predictable monthly distributions (fund-dependent).
- Downside protection: Investments are secured by real estate; managers can work out loans or foreclose per contract and state law if needed.
- Discounted entry: Buying at a discount can create a margin of safety and potential equity cushion.
- Lower correlation: Returns are driven by borrower performance, residential real estate prices, and asset management — not daily market sentiment.
- Diversification: Exposure to many loans across geographies and borrower profiles within a single fund.
Quick take: Instead of betting on appreciation, you’re prioritizing cash flow + principal protection mechanics.
How Mortgage Note Funds Work
Potential Risks to Understand
- Illiquidity: Private funds often have lockups or limited redemption windows.
- Manager execution: Performance depends heavily on underwriting quality, servicing effectiveness, and workout strategies.
- Legal/regulatory complexity: Varies by state and loan type; making experienced management critical.
- Valuation & pricing risk: Especially relevant for non-performing assets.
- Macroeconomic factors: Broader forces such as unemployment, interest rates, inflation, deal flow, and regional housing trends can all affect performance.
Mitigation levers: experienced servicers, diversified pools, conservative underwriting, strong collateral documentation, and transparent reporting.
Potential Risks to Understand
Illiquidity
Private funds may have lock-up periods or limited redemption opportunities, reducing access to your capital compared to public investments.
Manager Execution
Performance depends heavily on underwriting quality, servicing effectiveness, and workout strategies.
Legal & Regulatory Complexity
Rules vary by state and loan type, making experienced management and compliance expertise critical.
Valuation & Pricing Risk
Especially relevant for non-performing assets, where pricing can be uncertain and recovery timelines unpredictable.
Macroeconomic Factors
Broader forces such as unemployment, interest rates, inflation, deal flow, and regional housing trends can all impact performance.
Mitigation Levers
Experienced servicers, diversified pools, conservative underwriting, strong collateral documentation, and transparent reporting can help manage these risks.
What to Look for in a Mortgage Note Fund (Due Diligence Checklist)
- Strategy clarity: Which note types, geographies, and deal sizes?
- Track record & team: Prior cycles, loss-mitigation experience, references.
- Underwriting rigor: Collateral file reviews, data tapes, BPO/appraisal practices.
- Servicing & compliance: Licensed servicers, borrower-friendly but firm processes.
- Fee structure & alignment: Management and performance fees, skin in the game.
- Reporting cadence: Granular, periodic updates you can understand.
- Liquidity terms: Lockup, redemption rules, gates.
- Audit & administration: Third-party admins, bank/custody relationships.
- Tax considerations: The fund’s structure (e.g., LLC or C-Corp) determines whether investors receive a K-1 or 1099, so it’s important to consult your tax advisor. These funds can also be attractive for SDIRA investors—particularly a fund like IIF, which does not use leverage.
Mortgage Note Funds vs. Other Income Options (High-level View)
| Feature | Mortgage Note Funds | Dividend Stocks | Rental Real Estate | Bonds |
|---|---|---|---|---|
| Primary goal | Monthly cash flow, capital preservation | Income + equity upside | Rent + appreciation | Fixed coupon income |
| Backed by | Real estate collateral (the loan) | Corporate performance | Physical property | Issuer’s credit |
| Volatility | Typically lower correlation to equities | Market-driven | Property/market-specific | Interest-rate & credit risk |
| Hands-on | Manager handles servicing/workouts | Low | High (tenant/repairs) unless outsourced | Low |
| Key risks | Workout/servicing execution, illiquidity | Price swings, dividend cuts | Vacancies, capex, management | Duration, rate changes, default risk |
| Access | Private funds (accredited more common) | Public markets | Direct ownership or syndications | Public markets |
This comparison is for educational purposes and not investment advice. Each investment involves risk; review offering documents and consult professional advisors.
Labrador Lending’s Mortgage Note Investing Strategy
At Labrador Lending, our strategy centers on acquiring residential mortgage notes — performing, re-performing, and non-performing — at steep discounts, often 60–80% below face value. By building a portfolio across different regions, property values, and borrower profiles, we create a well-balanced foundation designed to manage risk and maximize returns.
We focus primarily on performing and re-performing notes, while selectively acquiring non-performing loans with strong potential. Our hands-on approach involves working directly with borrowers to restructure payment plans, restart cash flow, and transform non-performing notes into income-producing assets.
This process not only increases the value of each note but also delivers steady, real estate–backed cash flow for our investors.
Types of Mortgage Notes Labrador Lending Invest In
- Performing Notes – Borrowers are making timely payments, providing immediate and predictable cash flow.
- Re-Performing Notes – Loans that were once delinquent but are now back on track through borrower workout plans. In some cases, the fund may also sell these notes for a profit.
- Non-Performing Notes – Borrowers are behind on payments, but with careful restructuring and management, these assets can often be converted into performing income streams. Alternatively, the fund may exit through the property itself, generating profit from a sale.
Benefits of our 1st Lien Mortgage Note Fund — The Integrity Income Fund
For accredited investors comparing options like REITs, direct real estate, or private credit, our first-lien mortgage note fund stands out for several reasons:
Collateral Protection
Your investment is secured by a first-position lien, giving you priority over most other creditors if a borrower defaults. Unlike unsecured bonds or stock holdings, this protection is anchored in tangible real estate.
Attractive, Predictable Yields
Many funds target 7–10% annually with monthly or quarterly distributions. With Labrador Lending’s Integrity Income Fund, accredited investors can earn a targeted 10% annual return at the $100K+ level or 8% at $25K–$100K — income that often outpaces traditional fixed-income alternatives.
Lower Volatility vs. Public Markets
Mortgage note funds are not swayed by stock market swings or daily headlines, offering steadier, contractual income streams than REITs, equities, or crypto.
Downside Risk Mitigation
Because notes are often purchased at a discount and backed by real estate, there’s built-in protection. Options like foreclosure or restructuring give the fund multiple ways to recover value.
Diversification
Funds typically spread investments across borrowers, geographies, and property types — far beyond what most individual investors could achieve directly.
Hands-Off Passive Structure
Unlike direct real estate ownership, there are no property management hassles. The fund manager handles everything from servicing to compliance.
Tax Advantages
Depending on an investor’s structure, there may be opportunities to invest through Self-Directed IRAs (SDIRAs) or Solo 401(k)s, allowing for potential tax deferral. In addition, the fund may reduce taxable income through reserves and expenses. Our team has experience working with numerous SDIRA custodians, making the process straightforward for investors.
Liquidity Advantage
With a one-year minimum commitment, Labrador’s fund offers more flexibility than private equity or venture funds that often lock up capital for 7–10 years.
Inflation Hedge
As property values rise, collateral coverage strengthens, and yields often keep pace better than traditional bonds.
Aligned Interests
Many boutique funds, including Labrador Lending, have managers who invest alongside their clients — ensuring they’re equally committed to performance.
Track Record
The Integrity Income Fund hasn’t missed an investor distribution at the targeted preferred return rate since its inception over 3 years ago.
Passive Income with a Purpose
For accredited investors, income isn’t just about returns — it’s about reliability. The Integrity Income Fund offers a unique opportunity:
- Targeted 10% annual return (for investments of $100K or more)
- Targeted 8% annual return, paid monthly for investors contributing between $25,000–$100,000
- Monthly distributions and investor updates
- Real estate–backed investments: Nearly all notes in the fund are secured by first-lien mortgage notes on residential properties, providing a stable foundation for your portfolio.
- Straightforward 12-month commitment — the fund offers liquidity most other funds simply do not, giving you options for your capital in the near future.
Whether you’re reallocating from underperforming stocks or looking to generate consistent income in retirement, this is a fund built for income-focused investors.
Why You Haven’t Heard More About Mortgage Note Investing
Mortgage note investing isn’t flashy. It doesn’t make headlines. That’s why many investors never hear about it — even though banks, institutions, and seasoned professionals have been using this strategy for decades.
Now, firms like Labrador Lending are opening the doors for accredited investors to access this powerful, income-generating asset class.
Is It Right for You?
- Seeking monthly income over long-term growth
- Real estate–backed investments without active management
- Tired of market swings and want greater predictability
- Accredited investor with $25,000 or more to allocate
If that sounds like you, now is the time to explore how mortgage note funds can strengthen your portfolio.
Ready to Make Your Money Work Harder AND Smarter?
If you’re an accredited investor looking for:
- Targeted 10% annual returns with investments of $100K or more (8% at $25K–$100K)
- Monthly income secured by first-lien residential mortgage notes
- A straightforward 12-month commitment that offers more flexibility than most private funds
Discover the Integrity Income Fund
FAQ
What makes this different from a REIT?
How do investors get paid?
What happens if a borrower stops paying?
What’s the minimum time my capital is committed?
Labrador Lending
Helping accredited investors build steady passive income through mortgage note funds.
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Disclaimer: This content is for educational purposes only and should not be considered legal, financial, or tax advice. Always consult with a qualified professional before making any investment decisions.
