THE TRANSITION FROM CONVENTIONAL INVESTING METHODS TO REAL ESTATE MORTGAGE NOTES.  

Why do we see so many seasoned investors transition to note investing? We have found that towards the end of many real estate investors careers, after they have spent their time, money and energy pursuing the more “conventional” methods of real estate investing (renting properties, wholesaling, and flipping) the natural course of evolution brings them to real estate note investing. We have found this to be true for not only real estate investors but also investors that have been involved with mutual funds, bonds, ETF’s, CD’s and investment vehicles associated with the stock market. Is this coincidence or should we be looking for an explanation to this trend?

After spending years deeply embedded in the more conventional investing arenas the typical investor will begin to ask him/herself… Is there is a better way? Is earning sub-par returns, taking on more and more risk, with less and less control and an increased demand on their time the only option? We’ve heard this same story from an astounding number of investors.

The typical investor’s goal is to preserve and grow their hard earned capital at high yields with manageable risk and some level of control. For the most part, the majority of conventional investing strategies fail to meet one or more of these criteria. It is undeniable that all investments come with some level of risk and a varying level of return and time commitment on the investor’s part.  However, many of the investors that we deal with on a daily basis, especially those that have “been around the block,” are relatively comfortable with the risk/return ratio associated with holding real estate notes. And in many cases, these investors are significantly more comfortable with note investments compared to the investments that they held in the past. Stocks, rental portfolios, etc. Not to mention the higher yields and consistency of the returns.

When you add the security of a hard asset (the piece of property securing the note) into the equation, it may seem like a “no-brainer.” First lien mortgage notes are secured by a piece of property. If the payor on the note (the individual making payments to the note holder) defaults on his/her payments, the note holder can legally foreclose on the property and take control of the piece of real estate. What is the asset securing a stock when the market crashes?

When investors understand the three perks about real estate notes: Collateral, Returns and Control. In our words, its …”game over.” We have observed a slow and steady liquidation of conventional investments and a strong transition into note investments with many of our investors.

Of course not all notes are created equal and it would be detrimental to assume that every note will outperform conventional investing strategies. That being said, we would like to provide you insight into what types of notes have been successful in our own portfolio's as well as our investors portfolio's. In the next Note Factory News, we will discuss the different types of notes available in the marketplace and explain the types of notes that we prefer to hold and why.