Cash Flow Notes Come In All Shapes and Sizes
As I interact with investors every day I come across some of the most interesting investments. While I typically prefer to invest in single family homes for long term holds, there are indeed investors who love investing in notes. With so many different types of investors with different objectives, I always take interest when I find these incredible opportunities.
Different Notes for Different folks
Those who Love to invest in notes also have a variety of different notes they like to invest in. It is all about finding an investment that works for you and your comfort zone, Investments that fall into your risk tolerance level. We all heard the old saying “the larger the risk the larger the reward” seasoned investors of course know how to mitigate these risk by being informed so they can identify the possible risk and make calculated decisions as opposed to emotional based decisions. You can buy note s for single family homes, multifamily homes, commercial properties, basically anything that has a mortgage on it.
Types of Notes
I consider this one best suited for the active investor who has skills, knowledge and resources. Often banks (or Brokerages) package bank notes and sell them in bulk packages. This of course requires you to have deep pockets or perhaps partnerships to amass the funds needed to buy in bulk.
The challenges with buying these types of notes are the uncertainty that comes with them. As you purchase the note you now have leverage over the properties. Those performing notes who are current on their loan payments make this worthwhile. However there are those non performing notes where people have not paid their loan payments that create the challenges. You often have people living in or occupying these properties.
You have many options ranging from negotiating more favorable terms to evicting them by means of foreclosure. The latter of course comes with uncertainty to the condition of the property and a possible devalues of the property in relationship to the note. To me this is one of those higher risk higher, higher reward note purchases that require skills of an active investor.
Individual notes for strong cash flow:
There is a passive investor product. These are typically Notes that are either for single family homes that a smaller investor can buy and simply play the bank to the Buyer. The Property is the collateral. There are also larger sized notes where a few different investors invest and share the reward of a stronger return on investment. a scenario may go like this, lets say there is a 1 million dollar investment needed to acquire a note on a 25 unit apartment building. 4 investors each provide 250k. The 4 investors then share in the note with typically higher returns of double digits. These are all managed by a brokerage so this proves to be an easy passive investment with higher rates of returns.
Individual notes with cash flow and equity share:
This is one that passive investors find interesting. After you perform their due diligence on the Note, the property attached to the note and the company selling them you just sit back and collect payments. With these types of Notes you essentially just play the bank as an individual. Smaller passive investors love these as the returns tend to be higher than many other investments.
Notes are a great vehicle for the investor who does not want to deal with the day to day activity of owning property. You can still enjoy a great return that is secured with real estate without any hassle. The tradeoff of course is there are no tax deduction benefits or equity growth from property value appreciation.
If any of these notes sounds interesting to you give us a shout and we can share 3 more with you.