If you’re looking to grow your wealth, the mortgage note business (aka investing in home loans) is a lesser known way to limit your risks versus the stock market and other investment vehicles. Let’s dispel some common misconceptions about real estate note investing.
(1) You Must Have a Lot of Money to Start
It’s suggested to start with at least $30,000 to obtain a solid performing note. However, don’t let minimal funding stop you from investing. If you have a retirement account like a 401K, individual retirement account (IRA), or health savings account (HSA), it can be converted over to a self directed IRA, which can be used to purchase notes. You can also broker a deal, which is when an individual finds a note, flips it to an investor, and obtains a portion of the profit. You can even use other people’s money to obtain notes.
(2) You Have to Invest Full-Time
This is false. Often, it’s best not to invest full-time in the beginning. This will allow you to obtain capital from your full time job while you develop the necessary skills to equip you in becoming a savvy investor. Note investing is a great side hustle which enables you to generate passive income and can transform into a full time business.
(3) Mortgage Note Investing Is Not Safe
With all investments, there is risk. Unlike the stock market, which you have no control over, notes can generate consistent, predictable income. The stock market’s long term average is 10%, where as some notes can generate substantially higher yields than can stocks. In addition, as a note investor, you have the power to choose the yield you would like to obtain from a particular note. In other words – mortgage note investing is super safe!
(4) Note Investing is More Difficult Than Being a Landlord
Most of us are familiar with the three T’s: Tenants, Trash, and Toilets. These three factors can make being a landlord extremely difficult. Being a note investor or lienlord is much less time intensive. Rather than acting as a property manager, YOU ARE THE BANK. If you own your own home, think about how the bank works. They do not manage your home nor are they responsible for any repairs. They simply provided you a loan to purchase your home and collect monthly payments from you. There are three expected outcomes: you pay the loan back as promised, you pay off the note early, or you do not pay off as agreed. Note investing has more predictable outcomes than landlording.
(5) You Must Know Everything About Notes to Begin
You can never know everything about the mortgage note business. You will always need to learn new information. That is why it is important to establish connections with those who are more knowledgeable than you to start out.
You May Also Want to See:
- CFD vs. Mortgage/Deed of Trust – What’s the Difference?
- Unlocking Cash Flow: Harness Mortgage Note Investing and Be Your Own Bank
- Demystifying Mortgage Note Investing: How to Get Started Now!
- 8 Ways to Make Money with Real Estate Note Investing
- Struggling Wholesalers to Thriving Note Investors – Our Story
