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Real Estate Notes: Getting Started

There is a saying that I have heard through the years that goes like this: “There is more than one way to skin a cat.” Though I have never skinned a cat and have no desire to, I have discovered through the years that there is more than one way to invest your monies. Many folks choose to invest their monies in the stock market. If that is your investment of choice and you are pleased with it, then great. I have focused on years on what some would call alternative investments. That alternative investment that I have chosen are real estate notes. Most folks know that you can buy a house, fix it up, and then sell it (like on those HGTV shows) or that you can buy a house and rent it. While I have done both of those things, I really like investing in real estate notes. It is different than owning a rental home. When you own a rental property, you own the house and of course you are responsible for paying for repairs on the home, taxes, and property insurance. When you invest in real estate notes, you do not pay for repairs, taxes, and insurance; the borrower does. When you own a real estate note, the borrower has agreed to pay you a stream of payments for a period of time (e.g. 20 years, 30 years).

Less than 24 hours ago from the time that I wrote this, I had a phone conversation with a man who is interested in investing in real estate notes. He works as an underwriter at a bank and has seen the possibilities of owner financing and real estate notes. He wants to get started in note investing, and perhaps you are interested in doing the same. Here are a few tips in getting started in investing in real estate notes:

1. Learn from other people- Before you commit your hard earned money into real estate notes, learn more about it. Take advantage of blogs, posts, and videos from experienced, trusted note investors out there on the internet. Learn from other investors who are doing what you want to do which is invest in notes. When you do that, you not only expand your network and relationships, but you learn something and perhaps connect with people that you might do business with someday. Learn from their mistakes and successes.

2. Come up with a marketing plan- You are not going to successful in real estate note investing unless you have a way to find notes to buy and a way to perhaps sell notes. Some tried and proven methods to do that through the years are postcards, letters, social media, and an online web site.

3. Figure out what type of notes you want to invest in- There are two basic types of notes: performing notes and non-performing notes. What type you choose will be influenced by your risk tolerance. Generally speaking, performing notes have less risk than non-performing notes. While a borrower can stop paying at any time, I believe that lower risk real estate notes are those that are first position notes where the borrower has good equity in the home. While some note investors like to get the home runs and slam dunks you can get sometimes with non-performing notes, there is nothing wrong with the slow and steady returns that come each month with a first position performing notes.

These are a few tips on getting started in real estate note investing. I will share more tips next months. Best wishes in all your real estate pursuits.- Randy Wall

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