Mortgage Note Investing –Get involved in the Real Estate game without the need to own property or deal with tenant headaches

BY: Fred Moskowitz

Is it possible to benefit from investing in real estate without the stress and hassle of owning and managing properties?

I'd love to share a story with you about my friend Helen. She was a long-time landlord for many decades, and I always knew her to be a savvy investor in her 60s. When she came to me, she told me about one of her rental houses that had recently gotten trashed by the tenants who had recently moved out of the property.

Helen was not looking forward to renovating that property for the third time during her 30+ years long ownership of the house. She was starting to get tired of the life of a landlord, constantly dealing with the three T's of property ownership – Tenants, Toilets, and Trash.

"Life's too short!" she exclaimed. Helen had reached out to me wanting to learn more about note investing and asked to discuss how it could help her. After several conversations and strategy sessions, Helen renovated the house one last time and then put the property up for sale.

Excited at the opportunity to turn a new page in her investing journey, Helen took the proceeds from the sale and reinvested them into mortgage notes. After a couple of months, during our following conversation, we looked at her figures, and it turns out she had experienced excellent results. With the shift into mortgage note investing, she had effectively doubled her rate of return and the income from what she had previously been earning when she owned that property.

It reminded me of the powerful concept from Monopoly - slowly buying those four greenhouses and trading up to a red hotel. In the end, Helen was extremely happy to receive her passive income each month.

We have all heard that it is important to be diversified when it comes to our investments. And as someone who has spent decades working deep in the trenches of the engineering and tech industries, I often would see the same mistake being made by many professionals, time and time again.

People are investing in their employer's 401K retirement plan, and they 'diversify' by splitting their contributions among the half dozen or so investment choices available in the plan. The result is a false sense of security because there is no diversification in this case.

The reality is that the investments are 100% invested in stock market products. And when there is a correction, and the stock market takes a tumble, these retirement accounts often take a major hit, and it will take decades to get back to even again. This scenario can be extremely risky for someone who is nearing retirement age.

Investing in mortgage notes can be an excellent strategy for diversification, and I firmly believe that it deserves consideration by everyone as part of their investment portfolio. For the investor, mortgage notes are an asset that provides the benefits of downside risk protection along with cash flow and income generation.

What are mortgage notes? If you have ever purchased a piece of real estate, most likely you did so using financing from a bank or lending institution. The lender puts up a portion of the money used to purchase the property, and in exchange, the buyer signs over an interest in the property along with a promissory note to pay back the money at an agreed interest rate and term. The buyer then owns the property, and the lender owns a secured interest in the property along with a monthly payment stream consisting of interest plus loan principle.

For someone who wants to get involved in real estate to build wealth and wants to avoid taking on the responsibility or liability associated with owning and managing properties, mortgage note investing can be a great option. Banks knew long ago that they would rather own the debt on a property than be the direct owner.

In mortgage note investing, individual investors can purchase or invest in residential mortgage notes. That's right, investing and owning notes is a strategy available to just about anyone; it's not just for banks and institutions.

When you invest in mortgage notes, you are effectively stepping into the shoes of the bank and becoming the lender. And the powerful shift that you experience is that you transition from being the one making the monthly payments to being the one receiving the monthly payments.

How can individual investors get started in mortgage note investing?

The first way is buying and building a portfolio of mortgage notes. This is an active form of note investing and is an excellent option for an investor who has time, and that wants to roll up their sleeves and become actively involved in operating a business.

The second way is investing passively in a mortgage note fund. A note fund can be a great option for busy individuals that do not have time to focus on the business of note investing themselves. Through note funds, they can invest their capital passively and leverage the fund managers' expertise, skills, experience, and relationships, which is a perfect way to own an investment and "get paid while you wait".

Can I invest in mortgage notes using my retirement accounts?

Yes, mortgage note investments can be purchased and held inside retirement accounts. Many investors find this to be a great strategy to leverage that old 401 K and IRA accounts from prior employers.

Top benefits of investing in mortgage notes

Investing in mortgage notes offers many benefits, and here are just a few of the reasons why I feel that this is such a powerful asset class:

- Passive income: Mortgage notes produce consistent and predictable streams of income.

- High rate of returns: Investing in mortgage notes can produce higher rates of returns than other traditional investments such as stocks, bonds, and mutual funds.

- Security and protection of capital: Because they are assets backed by real estate, mortgage notes provide security and downside protection.

- Diversification: Mortgage note investing is a great way to diversify beyond traditional investments and can provide a hedge against downside risk in an investment portfolio

Residential mortgage notes exist on properties in every town and city nationwide, like the homes you and I live in. This type of investment strategy allows you to invest in Main Street as an alternative to investing in Wall Street. If you want to learn more, check out the book "The Little Green Book Of Note Investing" or visit the website: www.fredmoskowitz.com

Disclaimer: This article is for educational and informational purposes only and is not intended to provide financial, legal, tax, or investment advice.

About the Author:

Fred Moskowitz is an educator and best-selling author who has trained countless investors from all walks of life on how to create cash flow and passive income streams of their own. As a fund manager, Fred is a leader in the alternative investment arena and is recognized for his expertise in identifying and analyzing investment opportunities in building income-producing assets.

In addition to his work in the financial industry, Fred regularly speaks at conferences and events to share his insights and expertise. He is highly regarded for his knowledge, experience, and successful track record.

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