Because you don't own the property, if the value goes up, you don't participate in the profits. However, your investment is backed by a real asset -- although the foreclosure crisis proved that doesn't eliminate risk. The return can be lucrative, compared to other interest-based investments such as certificates of deposit.

But tread carefully, advises Harold Evensky, president of Evensky & Katz, a financial planning firm in Coral Gables, Fla. "You have to find a custodian to do it, and most of the major companies don't," he says.

The second caveat is that typically these mortgages are for above-market rates, which suggests creditworthiness issues. "If someone is paying you over the market, you need to ask why," Evensky says.