9 Reasons Real Estate Notes Work in ANY Economy

In the past real estate and stock market winnings were often on separate tracks. You had to ‘time’ the market on either.

Both can be solid investments if played smartly, but both carry risks if you jump in at the wrong time…or, even worse… panic and get out at the wrong time.

For over 30 years, I have consistently invested in Real Estate, Stocks and Options, and Real Estate Notes.

Over that time, the economy has gone up and down. Stocks up and down, Real Estate up and down, the value of the dollar changes, and interest rates ebb and flow.

Only Real Estate Notes provide the stable foundation I love most for managing risk…and earning gains.

Here are 9 Reasons Why Real Estate Notes Work in Any Economy

1. Secured by Collateral

Notes are backed by a tangible asset. Unlike some investments (Cryptocurrency comes to mind), at the end of the day there is a property that is used as collateral. In the event of a non-payment, I have all the rights a bank would have. I can foreclose, take back the property and re-sell.

2. Risk Mitigation

I don’t know a better investment for managing risk — all while earning a good return.

At the end of the day, the individual investor decides how much risk to take. It’s all about choosing the notes that work for your goals. And that does require a little patience and skill. If you want virtually zero risk, you’re not going to be competitive enough to buy as many deals, but you will still find some.

For example, I prefer not to be in any property greater than 70% of its value. That means if the property is worth say $190,000, the MOST I would invest in the note would be $133,000. That ‘risk mitigation’ is what helps me in the event I have to take back a property. That 30% equity is my buffer — my risk mitigation strategy.

3. Flexible Investment Options

Just like how I decide the level of investment I want to be in on a deal, deal types (the type of property) can help you mitigate risk as well. Maybe I want to focus on single-family homes over raw land. Perhaps I go further and only focus on single-family residences that are also owner-occupied (not rentals).

You can also choose to focus on note deals in a geographical area. Or focus on commercial properties. It’s all up to you thanks to the flexible investment options that come with note deals.

4. Predictable Returns

Try walking into a bank and telling them you want to receive 12% return on your money sitting in savings account. Or a money-market fund. Or a CD.

Not going to happen.

It is possible with real estate notes — you choose the return. This is highly dictated by HOW you find deals and what the market is looking for, but you’re in the driver’s seat. The general rule of thumb: even at the LOWEST rate, say 7-8%, you are getting the best-of-the-best notes. If you are working directly with sellers, you can expect 10%-12%.

5. Portfolio Liquidity

We have an entire course that talks explicitly about Creating Notes. We created that class to address two questions we see in the note industry.

The first, how can I create better notes to hold on to for interested income? Second, how can I create better notes to sell at a later date if I need/want to? The good news is that most notes purchased at some minimal discount can be sold later (and sometimes for even more money). Now, this does not mean you can go wild or off-the-grid with your underwriting, you want to align with what other investors are looking for.

That said, you will always have an asset that can be sold later if you choose to.

6. Lower Capital Requirements

With notes, you don’t have to jump into the deep end with big dollars. You can minimize your investment by focusing on smaller notes or partials. ‘Partials’ are buying just that — ’part’ of a note.

They, quite frankly, are one of the best parts of the note industry.

7. Less Management Hassle

Anyone who has owned real estate and had tenants knows the hassle of a 2:00 a.m. phone call because a toilet is making a funny sound or a sink is having a problem — or one of a million other reasons dealing with renters can be a hassle.

You know who doesn’t get those calls? Banks. As someone who holds the note, those hassles do not fall on you—they are the responsibility of the homeowner/borrower/payor.

8. Trading Power of Real Estate Notes

I suppose this could have gone in the liquidity category, but it is a bit different. Yes, you could always look at selling a note you own (most likely at a slight discount). But, you might have the option to TRADE the note.

The advantage to trading is that you can typically trade at the face value of the note. So, if things got tough and someone really needed the cash flow of your note, you might be able to trade for something tangible you want.

9. Notes Stand the The Test of Time

Let’s face it: the economy will go up and down. Private mortgages and notes backed by real estate have been around for a long time — they’ve survived those ebbs and flows.

Wealth is achieved by slowly growing your portfolio, not overnight, and not trying to ‘time the market’ just right. Note strategy is not new, it is proven. It may not be as sexy as whatever virtual Cryptocoin is being pitched that week, but I don’t need sexy, I want to grow my money and retire.

You don’t need to convince me of how great the real estate or stock markets can be—I have made money in both. Both have advantages and disadvantages. For me, investing in real estate notes provides all the benefits I’m looking for and more. We didn’t even get into tax advantages, self-directed IRAs, or note acceleration.

Want more? Keep learning about notes!

• Marketing for Notes Master Class
• Creating Notes Master Class
• Mastering Partials Master Class
• 7 Things to Do for Your Note Business Right NOW
• Stop Doing This When Offering Seller Financing
• What is Minimum Note Discount and Why is it So Important?