The other day, I got a message from a tenant.

“The downstairs neighbor is causing problems. Lots of people living there now. And a dog. And the sound of glass breaking.”

Ugh. Seemingly not the worst news, but rent payments for the next 3 months were either late or totally missing. And when the tenant was finally evicted, cost of damages exceeded the security deposit.

I told myself that this was just how real estate investing works. I have to get used to dealing with headache tenants, property damages, and upset neighbors.

But I just knew there had to be another way. 

House-Hacking my way to Becoming a Landlord

I leveraged a house-hack to kick-off my real estate investing. The strategy involves purchasing a single family home or a small multi-family home (like a duplex or a triplex) and living in it while simultaneously renting it out to tenants. It is a fantastic strategy that I still recommend to friends getting started.

House hacking allowed us to get a great loan product and put only 3.5% down on the cost of the home. We split the home into 2 units by converting the basement into an ADU (accessory dwelling unit) and began renting out the bigger of the two units immediately. I felt so smart.

We moved and began renting both units. I added several short term rentals to my portfolio, one that went through a grueling renovation process. The whole time, I devoured podcasts and books on every aspect and asset class of real estate investing. 

Cue the headaches.

We spent weekends doing repairs. We spent nights managing vacancies, tenant disputes, and contractors. 

As a parent and a passionate outdoor adventure enthusiast, these are the last things I wanted to be doing with my time.

I knew there had to be a better way to invest in real estate than keep spending nights and weekends managing my properties (or managing my property managers). 

Then, I Found Note Investing.

Jaime, a fellow make-your-own-dreams-come-true kind of friend and now business partner, and I both dove into learning the intricacies of buying and selling performing and non-performing notes. 

We love the higher returns in note investing without ever managing a single tenant or a single repair. In fact, we don’t touch the houses at all. The house serves as my collateral to secure my investment. We can also help keep people from losing their homes. 

We also love that we can invest in notes from anywhere in the world as long as we put in the time and effort to learn and perfect the intense due diligence required and build the strategic partnerships necessary to purchase the notes. 

We studied for over a year, purchased our first notes and brought together a team with over a decade of collective experience in non-performing note investing. 

And we haven’t looked back.

And now, we are able to partner with individuals looking to get their money working harder without a significant time investment. Passive real estate investing at it’s finest. 

What is a real estate secured note?

A real estate secured note is the paper or documents behind every real estate transaction. You probably think of it as the mortgage, or the loan. 

Here’s how it works and how it is possible to cash flow off a note.

A lender offers to loan a borrower money to purchase a home. The lender creates terms (interest rate, payment period, balance amount, down payment) and puts these terms into a promissory note. A mortgage (or deed of trust) acts as the glue that attaches the physical asset (a house) to that promissory note as collateral. 

This is one of the first and most powerful elements of risk mitigation in note investing – the collateral. Through extensive and specialized due diligence (a second important way to mitigate risk), we only purchase notes where we can still get a great return if we end up with the house. Although, our targeted exit strategy is a win for the borrower and a win for our returns. (I’ll dive into that below).

These notes are often bought and sold after they are originated. You may have seen your primary residence loan be passed between banks. It is common. It isn’t just big banks who can purchase these cash flowing assets (you’ve seen the amortization schedule and total interest payments for your home loan…it is mind boggling how much the banks can make in home lending). 

We can too.

We like to purchase non-performing notes, or notes where the borrower has stopped making payments. 

Wait, what? Non-performing?

I know that sounds crazy, but stick with me. In a non-performing note, we have the opportunity to help the borrower keep their home by creating new terms they can afford. They can keep their home and we get the highest returns. This is our favorite exit strategy.

It is actually the best little-known secret in real estate investing we’ve ever seen.

Why haven’t I heard of this?

Note investing seems complicated at first, which keeps most people from learning more or exploring partnership opportunities. 

And for good reason. The barrier to entry here is high. 

Note investing requires very detailed due diligence before even making an offer. The due diligence falls into three categories: the asset (the physical house), the borrower’s history (through legal and ethical means), and the paper (the quality of the recorded documentation). 

It is a lot of work. 

The second barrier (oh yea, there are multiple) is getting access to the inventory. 

Banks don’t just sell notes to anyone. In fact, they don’t sell single notes at all. To get access to a list of available notes, note purchasers must have the network and contacts with the sellers. Note buyers typically try to purchase notes in bundles to get the best prices as well, which requires capital funding partners.

There just aren’t a lot of people willing to put in the time and effort to invest in notes. But those who do never look back.

What is the catch?

You are probably waiting for a downside here. And, honestly, we haven’t found a good one. 

Note investing partnerships create win-win-win scenarios. (Yes, there are 3 wins there). 

The capital partner (you) gets your money working harder, has a secured investment, and puts in very little time. Your potential returns are similar to hard-money lending or around 10-15% annualized return. First win.

The operator team (like us at Flow State Investing) leverages extensive knowledge, experience, networks and systems for note purchasing and asset management. They perform the bulk of the heavy work in the management of the asset and they get a portion of the returns for that work. Second win. 

Finally, the borrowers have the opportunity to get back on a payment schedule and keep their home. By maintaining the largest asset most borrowers will have, there is a greater likelihood for future financial stability and generational wealth. Third win.

Everyone comes together here to create the best outcome for each party involved.

But Wait, Aren’t You A Raft Guide, Not A Real Estate Investor?

Ahh, yes. It’s true. I have been (and maybe always will be) an adventure dirtbag.

My history of class V whitewater kayaking, international guiding, and ultrarunning have helped me understand the true value of time. I valued experiences, friendships, and service over the accumulation of stuff and pursuit of a high income. I’ve also seen how quickly life can be taken away, not only by extreme adventure sports, but by old age and unfortunate accidents. 

I saw lives end without having served their true purpose. I saw friends and family wish they had seen the value of time and of pursuing their dreams no matter how crazy they were.

I’m also no stranger to finding a flow state. 

Evaluating every wave and waterfall in a series of moment-by-moment decisions strips away the non-essential and creates a deep grounding in the present moment. In his book The Happiness Advantage, Shawn Achor describes the flow state as “that locked-in feeling of total engagement that we usually get when we’re at our most productive.”

When I found real estate investing, I found a financial flow state that allowed me pursue my true purpose in ways I never thought possible. 

Now, I can take adventure to a whole new level. 

Ready to learn more?

The best way to learn more about growing your money with note investments and partnerships is to join the Flow State Investor Circle.

We’ll schedule a call to learn about your both in investing and in your current (and dream) lifestyle. If it sounds like a good fit for your goals, you’ll get notified first when partnership or investment opportunities open up. 

Aligning your investment strategy with the type of life you want to live can change your life. Passive real estate investing builds not just financial wealth, but time wealth as well. Time that can take you to the next level in multiple areas of life.

So if you’re ready to be done with the heachaches of tenants and grow your wealth through real estate, join the Flow State Investor Circle