Are you excited to invest in real estate? Excited to get calls about noise violations from your tenant’s neighbors? Or what about having to deal with flooding damage in the bathroom? Or maybe you’re excited to get to meet and interview 80 applicants to fill a single vacancy? 

Ahh, the simple joys of real estate investing. (Uggh.)

I’m guessing you’re not excited about that kind of real estate investing.

What if you never got a call from a tenant? Or you only spent a few minutes every month managing or monitoring your investments? Or what if you got a bigger return than expected? 

This is our kind of real estate investing and I’m guessing it is probably your preferred scenario as well.

And this is why we love Note Investing.  In this blog, we’ll cover 5 reasons you should ditch rentals and invest in real estate-backed Notes – a little-known strategy in the real estate investing world. They are:

1. You spend less of your time.
2. You work with owners instead of tenants.
3. You never get a maintenance call.
4. You get to use the magic of amortization.
5. You can make a hugely positive impact at a moment when a family needs it most.

Wait…What is a Note?

We know real estate is a powerful wealth-building vehicle. I mean if 90% of the world’s millionaires got there because of real estate, it is pretty fair to make that claim. But, they didn’t get there by managing rental properties.

I’m going to tell you 5 reasons that you should think about getting your money working in Note Investing instead of rental houses. First, if you haven’t heard about Note Investing, check out our ultimate guide blog series on How Note Investing Works.

For a quick overview, the Note is the paper behind every real estate transaction and can be a cash-flowing asset. The Note consists of the loan documents (terms, interest rate, down payment) and the mortgage or deed of trust that glues the physical house to those loan documents as collateral. 

We can buy the note and either cash flow from the interest payments (like a bank does), or we can add-value and flip the note. Again, I dive deeper in our How it Works video and our article on the value-add strategy of note investing.

So how does Note Investing compare to single-family rental house investing? Let’s jump in.

#1: You Spend Less TIME When Investing In Notes Instead of Rental Houses.

This is a big one because time is your most valuable asset. They aren’t making more of it so you better spend it wisely. 

Investing in Notes requires very little of your time, whether you are partnering with an experienced team to flip notes, or you hold a Performing Note yourself. A Note Partnership, like those we do at Flow State Investing, allows you to access the steeper discounts and higher returns found when flipping non-performing notes into performing ones without spending your time doing all the legwork required to mitigate risk.

Basically, most note investors do not do all the work themselves. They find partners. If you do want to go at it solo, buying a performing note and using a servicer to help manage the payments and communication can be a great “mailbox money” option.

However, if you love the value-add strategy and want the potential bigger returns when investing in non-performing notes, start talking to potential partners.

#2: You have Owners Instead of Tenants in Note Investing.

The owners of the home are paying you instead of tenants. And most owners have a much higher stake in making those payments than a tenant does. 

With every payment made, owners build up their own equity, giving even more reason to make the next payment. They also typically take way better care of the property. Since that house is your collateral or the security on your investment, this actually matters.

There is also a form of empowerment here that your money is working to spread. You are helping an individual or family build the most powerful kind of financial security – a steady roof over their head. It is great giving tenants a good home, but owners simply have more to gain and are often more empowered when making payments. 

#3: No Maintenance Calls.

The third reason to invest in Notes instead of rentals is that no one calls their lender when a pipe bursts. As a note investor, you never deal with any maintenance issues. 

No contractors. No yard work. No snow removal. 

And you aren’t leaving that work to tenants either. Remember reason #2 – the owners take care of their property – not you.

This naturally relates back to reason #1, your time. We spent years taking calls from tenants about small (but important) issues to fix. It was incredible how much time these issues actually took, and how little we think of that when putting our money into real estate.

Not getting any maintenance calls from tenants is a huge benefit to this type of real estate investing. The small interruptions to your life can really add up.

#4: The Magic of Amortization and Getting More of Your Return Earlier.

Have you taken a closer look at that amortization schedule on your mortgage? Notice those first few years of payments are mostly interest? That means that as a note investor, or the lender, you get to collect more of your returns early on. 

This is a huge form of risk mitigation. 

And since homeowners tend to either sell or refinance before year 7 of homeownership, you often get a full payout after having made a huge chunk of your return already. In fact, your yield increases the sooner the borrower pays off their debt in full. 

Think about it, the banks don’t own rental properties. They own the Notes. And let’s just say, the banks know how to make money.

#5: You Can Make A Massively Positive Impact When Investing in Notes.

Your investment can make a HUGE positive impact in helping a family create generational wealth, especially when investing in Non-performing notes. True, giving a quality home to a tenant may help them build a better life, but helping someone build equity and own their own home – THAT is a pivotal point in creating the foundation for financial stability and wealth preservation for not just them, but also subsequent generations.

Homeownership tends to get passed down from generation to generation. Both in the form of more financial support but also in that we do what we see. When a family owns their home, their kids see that it is possible and are more likely to do the same.

Helping a family keep their home can cause ripple effects into the financial stability of generations to come.

Review of Our 5 Reasons We Like Notes (over Rentals)

Ok, let’s review. The 5 reasons to get your money working in Notes instead of Rental properties are: 

1. You will spend less of your TIME. 
2. You have OWNERS instead of TENANTS 
3. No one calls the bank when a pipe bursts
4. You get the magic of Amortization on your side
5. The multi-generation impact of helping homeowners keep their homes.

You Can Invest In Notes

We love note investing, as you can probably tell, and would love to chat with you to see if a note partnership may fit into your investing strategy and life goals. Join our Investor Circle to schedule a call with me. We help individuals get their money working in Notes to take advantage of these 5 reasons.