Note Investments compared to other investments.
The primary reason why most note investors advocate notes over other types of investments comes down to two words. Collateral and Returns. With note investments you are often earning much higher returns relative to other types of real estate and stock market investments. With note investments you are also secured by the collateral, which is the piece of property. This is a major positive for many investors and often the primary reason why they choose to invest in notes. The fact that there is a tangible asset backing the investment that you have control of is extremely appealing to many investors. Once we tell them this, many begin to question the large amount of capital they have sitting in the stock market where they have absolutely no control over their investment.
Owning a rental property vs. owning a mortgage note.
What happens if a tenant in your rental property doesn't pay rent? For those of you who have had the misfortune of going through this process you know that it can result in a painful series of events including losing rent, having to file to take the tenant to court for eviction, pay court costs, make any repairs to the property and marketing to re-rent the property. Many times with renters you will not be able to collect recourse because of the minimal assets that renters typically have.
However, when you choose to own notes, you will be dealing with a homeowner instead of a tenant. The mindset of these two types of people is drastically different. When dealing with a homeowner there is typically a pride of ownership mentality and they will often take measures to preserve their image as a creditable borrower. This will result in fewer missed payments, if any, and more predictable payments. If the homeowner of your note happens to miss a payment (this happens on very rare occasion you can collect the missed payments, late fees and attorney fees from the equity of the property. Bottom line is there is a tangible asset that you have leverage over. As an investor, it will allow you to sleep well at night knowing that your investment is secured and you have control over how your money is working for you.
What are the main advantages of buying and owning notes?
1. Passive Monthly Cash Flow Without Having to Deal with Tenants
If you are graduating from rental properties to notes, you will notice the abundance of time that is freed up in your day to day life. The pressures and burdensome demands of dealing with tenants and property upkeep will be alleviated.
2. Collateral
When you own a note, you own collateral (the property) and you have a secured lien. This lowers the risk dramatically compared to other types of investments. The bottom line is you can do something about your investment if anything happens. If you are graduating from the stock market to notes, you will feel a new sense of control and peace in your life knowing that you have collateral (the property) in the investment.
3. You Can Manage More Notes Than Properties
It is very easy for a typical note investor to manage and hold a large amount of notes. Compared to the demands of typical property/rental investments that require constant attention and upkeep, a note investor is entirely passive. This will free up your most valuable asset... your time.
4. You Can Feel Good About Your Investment
You will be investing in a responsible endeavor. By investing in notes you are providing an opportunity for a family to own a home.
5. You Can Purchase Notes in Your IRA
Purchasing notes in your IRA is a great strategy for retirement. When you do this, you are allowing your money to accumulate tax free in your IRA. Your returns will snowball and when you come to use your fund, you will be astounded at how rapidly your dollars have compounded.