What are the downsides of mortgage note investing?

[Nicholas Z.]

I've been researching mortgage note investing, and from everything I've read, it seems like a great way to invest in real estate. However, I've not seen much about how mortgage note investing can go bad. According to what I've read so far, assuming you've purchased a first-lien mortgage, the possible outcomes are:

1. The borrower continues to pay, so you get regular monthly income.

2. The borrower refinances, so you get paid a large lump sum and exit the mortgage.

3. The borrower pays off the mortgage, you get a large lump sum and exit the mortgage.

4. The borrower stops paying, at which point you can:

   a. Sell the mortgage note

   b. Reach out to the borrower to try to get them to pay again

    c. Foreclose on the property

This seems about as close to a no-lose situation as there can be...and that gives me pause. I don't believe in no-lose situations. There's always some way for things to go wrong and you lose your money.

So the question is: what are the downsides of mortgage note investing? How might I actually lose all or most of my money doing this?