Why Alternative Investing Starts With Cash Flow: Fred Moskowitz on Mortgage Notes and Secured Income
Where should capital go when the point is income every month rather than a gain on a screen? Investors and business owners holding money outside their operating company meet that question constantly, and the conventional answers share one shape: you buy a claim, somebody else runs the asset behind it, and the return arrives when you sell.
Fred Moskowitz answers it differently. An educator and author whose book, The Little Green Book of Note Investing, introduces the field to newcomers, he works in a corner of the market that most private investors never see, trading existing mortgage loans rather than the properties securing them.
What follows sets out his case: what a note position actually is, where its protection comes from, how investors reach a market that has no shopfront, and why he treats education rather than capital as the real barrier to entry. The decision behind it will be familiar to anyone sitting on surplus cash, or on a retirement account left behind at a former employer. Does the next allocation go into an asset held directly, or into one priced by a market the holder does not influence?
What It Means to Own the Loan, Not the Property
A mortgage note is the loan itself. Buy one and the borrower’s monthly payments come to you rather than to the institution that wrote it, with the property standing as security for the debt.
Around that sits a wider family of assets Moskowitz groups under the same heading: rental property operated for income, an online course built once and sold repeatedly, royalties on a patent or a recording, a minority stake in a small private company that pays distributions to non-operating owners. Because ownership and a measure of control define the category for him, the test is not which sector an asset belongs to but whether the investor holds the thing itself. Access, in his description, runs through relationships rather than through a platform: you know someone who is selling, structuring or partnering on the deal.
“the main characteristic that I like to highlight is that these type of Investments generate cash flow and income for you on an ongoing basis and that can be really powerful”
For an owner accustomed to thinking in enterprise value, that is a different model of what a return looks like. Anyone weighing a first allocation outside listed markets has to decide which of the two they are really buying: a monthly distribution, or an exit multiple several years out.
Starting with the payment rather than the price also shapes how he reads risk.
Where the Protection in a Mortgage Note Comes From
Security is the feature Moskowitz returns to most often. A note carries a registered lien, so the lender’s interest sits in the public record attached to the title rather than resting on the borrower’s good standing alone: “when you invest in a mortgage note that comes along with the security interest in the property”, as he describes it. Should the property later be sold or refinanced, the title company clears what is registered against it, and the lenders on title are paid from the proceeds.
He roots the logic in banking practice. Lending against real estate is an old business, and institutions have kept doing it, on his account, because property and title law in the United States and comparable jurisdictions puts a secured lender in a clear, well-tested position. Monitoring a loan still falls to whoever holds it, so the protection is structural rather than automatic.
Asked about a second 2008, his own view is that a repeat of the last downturn is not what lies ahead, though he allows for turbulent periods and for a liquidity crunch. Enough was learned from the crisis, as he sees it, that the same sequence is unlikely to run again.
The interpretive shift matters for anyone used to underwriting equity risk. The question stops being what the property will be worth on exit and becomes whether the borrower pays, and what stands behind the loan if they stop.
How Private Investors Reach the Secondary Mortgage Market
Notes change hands every day, and most borrowers have brushed against that market without registering it. The letter arriving a few months after a purchase or a refinance, announcing that the loan has been sold and giving the details of a new lender, is the secondary market at work.
Investors get in, Moskowitz explains, by building relationships with other note investors, with hedge funds and with note funds, and buying loans from them. One route is passive, putting money into a fund run by a team whose mandate and objectives suit the investor; the other is active, buying individual loans and assembling a portfolio, with the due diligence that implies. Neither is the correct answer in his telling, and the work of choosing is mostly exploration.
He is also keen on a source of capital that many people forget they hold. Retirement money sitting with a current or former employer can, he teaches, be directed into alternative assets rather than left where it was placed by default, and the mechanics of doing so form part of what his book covers. Rules differ by country, as he acknowledged when his host raised the position in Austria, where a pension holder cannot take over management of the fund.
Advisers and investors outside the United States therefore face a preliminary question before any of this becomes actionable: whether their own pension regime permits self-direction at all.
Why Moskowitz Treats Self-Education as the Real Barrier
The obstacle he identifies is not access to capital but the absence of any formal route into the subject.
“it’s not something you’re going to learn in school there’s no courses about this in school or in college or anything it takes self-education to do it”
Hence the emphasis he places on how people learn once formal education ends. The distinction he draws is between a fixed mindset, in which abilities feel assigned at birth and permanent, and a growth mindset belonging to someone who keeps learning by choice. That learning can come through books, classes, podcasts or audiobooks, and through masterminds and associations that put a person among higher-level operators. Attention is the scarce input, in his view, spent on the content and the company a person chooses. He cites the saying he attributes to Jim Rohn: we become the average of the five people we spend the most time with.
Napoleon Hill runs underneath this. The book his host holds up during the conversation was written in 1937, on his account, and he re-reads it roughly once a year, because the reader has changed between readings and a different passage lands each time. Its thirteen principles cover faith, desire, specialised knowledge, organised planning and the mastermind. People take the wrong idea from the book, he thinks, since growing rich on his reading extends to relationships, friendships, family and health as much as to money.
Founders and owners who take that seriously are being asked to treat their own learning as an allocation decision rather than a personal indulgence, and to fund it accordingly.
Why Alternative Income Rewards Patience Rather Than Size
Many people never see themselves as investors at all, believing the role requires a large starting balance. Moskowitz rejects the premise. Capital helps but is not necessary, because small consistent actions sustained over a long period compound powerfully, with time working on the investor’s behalf, and the beginner’s real task is to act on the techniques.
The corollary is a horizon. His advice to newcomers is to “approach investing as a long-term activity it’s not that you’re going to double your money overnight”, and not to chase the next startup that explodes in value. Steady compounding is what produces the stability he describes.
For an investor building an income portfolio, the practical instruction is to size the first position for learning rather than for return, and to judge it on whether the payments arrive as underwritten.
The divide he describes is not between large investors and small ones. It runs between capital handed over to be managed at arm’s length and capital whose owner understands the instrument, the security behind it and the relationships that produce access to it. That understanding is not bought; on his account it is built, loan by loan, which is why he treats self-education as the asset that precedes every other one.
Fred Moskowitz set out his reasoning at greater length in Building Wealth With Alternative Investments: Insights from Fred Moskowitz on the GrownLearn podcast.
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