by Donna Bauer
Donna Bauer will be a featured speaker at the Michigan Landlord & Real Estate Investor Conference & Expo this year, February 27-29, 2020 in Grand Rapids, Michigan. Donna’s presentation will be Thursday, February 27th at 10:10 a.m. Tickets are only $9.99 for all three days for non-members and free for current RPOA members. Click here to get your tickets now!
I’m Donna Bauer, The Original NoteBuyer®. Over the years, I’ve done all types of real estate transactions: buying, selling, leasing—virtually everything having to do with real property. I’ve also done all types of note deals: performing, non-performing, seller-financed, and everything in-between. I can tell you, without a shadow of a doubt, that given a choice, I will always choose note deals over dealing with real property. I believe that once you learn about notes, you’ll love notes, too.
The secret to carefree, successful real estate investing is to control the real estate without owning it. When you own the real estate, you own all the headaches that go with it. If you’re investing in notes, then, instead, you’ll have the security of the real estate without any of the headaches.
The reason for this is that you never actually own the property. You own the note. And since you don’t own the property, you don’t have to deal with tenants, trash, toilets, or termites ever again. You also don’t have to deal with repairs, rehabs, contractors, or even liability claims. You don’t even have to worry about carrying costs such as taxes, insurance, utility bills, or HOA fees. In other words, you’ll have no negative cash flows, unexpected expenses, or headaches when you’re dealing with the note instead of the real property.
Are you beginning to see why I love notes? I enjoy all the security of a real estate investment without any of the hassles!
One of the most common questions I’m asked when I talk about the security of notes is, “What happens when the borrower doesn’t pay?” You might come to an agreement with the borrower to accept the deed to the property in lieu of foreclosing and jeopardizing their credit. Otherwise, you’ll simply go ahead and foreclose, where one of two things will happen: either you’ll be paid off at the foreclosure sale, or you’ll wind up owning the property. At that point, you will have to deal with the property, but if you have used my evaluation process, you can often sell it for extra profit, keep it for residual rental income, or even move into it if you want.
Notes offer the opportunity to safely earn rates of return that you won’t find elsewhere. Today, you can easily purchase seller-carryback notes on the open market for double digit returns, but if you avoid the middle man and market for mom and pops who are looking to cash out of their life-long investments, it is not unusual at all to lock-in initial rates of return of 20 to 30%. But that’s not the half of it.
Since you purchased the note at a discount, when it pays off early and you suddenly realize your profit from the discount, your rate of return can easily sky-rocket to unbelievable returns of 60, 70, 80% or more. And all the while, your investment is fully secured by real property. It doesn’t get any better than that!
Passive income is another one of my favorite benefits of notes. After you’ve sealed the deal, the heaviest lifting you’re going to do is lifting those check-laden envelopes out of your mailbox. If that isn’t sweet enough, you can choose from a variety of scenarios as to how you want to receive your payments.
For example, many seller-finance notes are written for up to thirty years. These will give you a steady income for a very long time. But if you prefer to earn your residuals over a shorter time frame, you can simply select a balloon note instead, or even buy a partial. That’s one of the beautiful things about doing notes—you get to formulate your own game plan to fit your specific goals.
And again, for the duration of your residuals, your investment is secured by real estate. You’ll earn double-digit returns without the risk of stock market investing. In fact, I routinely earn much higher rates of return on my notes than I do on my traditional real estate investments.
It’s very difficult or almost impossible to flip real property with no money in the bank. Repairs, rehabs, and contractors don’t come free. It’s much easier to flip a note with no money down. If you’re just starting out and need to use other people’s money, then I recommend you start with notes.
Another major benefit of notes is how they offer something that real property cannot: liquidity. If you end up needing cash, then notes are much easier to sell than real property. Let’s face it: life happens. You get married. You get divorced. You want to travel. Medical issues arise. The kids are ready for college. You decide to retire earlier than you initially intended. If you’re receiving payments on a note and you need cash, all you need to do is sell those payments to another investor for cash. You don’t even need to sell the entire note! You could just sell part of the payments to get the cash you need.
As I mentioned earlier, notes give you the ability to tailor-make a game plan to fit your personal situation and your personal goals. Notes offer much more flexibility in your goal planning than traditional real estate investments ever could.
What are some scenarios where different note strategies can help you the most? Let’s say you suddenly needed to come up with $10,000 because there was an emergency with your children. How could you accomplish that with notes? By flipping a note for quick cash!
Let’s say you’re looking to supplement your regular income to increase your monthly cash flow. How could you accomplish that goal with notes? You would flip notes to get lump sums of money, and you’d then invest those lump sums in a note to build up your Mailbox Money.
Let’s say you want to build a portfolio of properties. There’s no better way to acquire properties at huge discounts than to buy non-performing notes and use them as a back door to acquiring the property. You’ll get properties at much greater discounts than you could anywhere else—even at the auction.
The bottom line is that note buying is the fastest, easiest, and safest way to make huge profits in real estate, and that’s why I love notes. I hope this article has encouraged you to consider adding notes to your portfolio. Why deal with headaches when you can deal with notes?