What are the financial benefits of mortgage note investing? Investing in mortgage notes is a form of passive investing, creating a passive income with a worthy compound effect. If you’re looking to invest in mortgage notes, reach out to us and learn about the different fund investments we have available.
Let’s explore the many reasons one would want to learn the note business and we’re gonna start with the financial benefits because that’s probably the initial thing that draws most people to notes. People want to know how much money can I make investing in notes.
I’m going to start by talking about the rate of return on the investment. Now there’s no question about it. Mortgage notes can provide a very attractive rate of return double-digit returns today are actually pretty difficult to achieve in most types of investments. And oftentimes you have to take on a considerable amount of risk to get those double-digit returns. If you think about what most financial advisors talk about with clients they tend to set the expectation that returns will be sort of mid to upper single digits.
It’s kind of similar to where the stock market has historically performed. Now consider this example about the importance of the rate of return. One investor invests a dollar a day each day for 40 years earning 5 percent compounded interest and you take another investor that invests that same dollar a day every day for 40 years, but there was only 15 percent compounded interest. The investor earning 5 percent interest has less than fifty thousand dollars and the investor that’s earning 15 percent interest has over a million dollars. after 40 years.
That’s an incredible difference. Now in addition to higher than average investment returns performing notes provide cash flow. And if you’re a business owner you know that the two most important things in business short term cash flow long term cash flow. Cash flowing notes provide a great source of passive income and having multiple streams of income dramatically increases your earning power. Now the legendary Jim Brown was known for his seventy ten ten ten formula which argued that the way to get rich is to spend only 70 cents out of every dollar earned with the other 30 cents he believed you take 10 cents and give it to the charity you take 10 cents and you put it into an active investment. And with the remaining 10 cents, you make a passive investment whereby you allow somebody else to use that money and you generate interest income. That passive investment is essentially what you’re doing when you invest in a note because someone else uses your money and pays you interest income.
Most people also trade time for dollars meaning they remove themselves from their jobs and they no longer make money. The concept of creating a money machine is to generate income while you sleep or while you’re on vacation or while you’re pursuing other life’s passions. Why is that important? Well, investing in notes is a great way to stop trading time for dollars when you build a portfolio of cash flowing notes over time. So the interest income serves as your money machine. Imagine a day where you can wake up and know that you have multiple streams of income supporting you and your family and the freedom to design your day and your week and your month around whatever brings you the most joy and fulfillment.
In the note business, there’s also no cap on income so while most people never give much thought to the fact that their income is capped by their employer and if you were to chart out the average employee’s income over their entire career you know you’ll generally see it’s relatively flat from one decade to the next. Wage increases tend to be very linear and not often exceeding the rate of inflation.
Unfortunately, only a small percentage of people grow their annual income by multiples over their career. For example, if you’re making fifty thousand dollars a year in your thirties over the course of the next few decades how likely is it that you’ll grow that income to two hundred fifty-thousand per year. That’s a five times multiple. I believe it’s a very worthy and attainable goal to actually 10x one’s income. Peter Diamandis says 10x does not require 100 times more effort than growing by 10 percent. But it does require a completely different way of thinking. It’s a different mindset.
One of the biggest struggles I had as an employee was that I knew the salary I’d get from my employer would largely influence the kind of home that I could live in and the type of school that I could send my kids to and what kind of vacations we’d be able to take. But even more than that I just had this philosophy that success was more about living on my terms. Which meant doing what I want when I want where I want and with whom I want. And really how much I want. I just wanted a bigger future and I wanted to be in control of that which I found possible in notes. In the next lesson, we’re going to talk about the lifestyle benefits that many realize in the note business. We’ll see you there.
In addition to the financial benefits mortgage note investing offers, there are also many lifestyle benefits you can learn about.