Note Investing: A Unique Investment Opportunity in a Down Market

Let’s talk about why note investing is a unique investment opportunity. Notes are a niche asset class, and what I mean by that is far fewer people understand note investing as compared to investing in real estate property.

I’ve met a lot of sophisticated real estate investors over the years, and you’d be surprised how few really understand the note business or even realize that they could own a note instead of owning the property. Unlike real estate investing, where you can quickly find a real estate agent that knows everything or a title company to handle all the paperwork, there’s simply a steeper learning curve when trying to make a note investment. The good news is you’ll get that training right here in these modules.

Let’s talk about another unique aspect of investing in notes, which is risk mitigation. Unlike investing in real estate as a note investor, you can mitigate or offset a lot of the investment risk in the case of a housing downturn. If you were in real estate in 2008, you know what I’m talking about. You probably felt that housing correction. Let’s take an example where if you owned a home in 2008 that was worth one hundred thousand dollars, but the market corrected 10 percent, the value of that property is now ninety thousand meaning the value of your investment just declined by 10 percent or ten thousand dollars. If you consider that same scenario but where you are the lender, you take that hundred thousand dollar property, but the note balance where you’re the lender is only eighty thousand. Now assume your borrower continues to pay despite the housing downturn you were not impaired on that note because your investment hasn’t lost any value. The loan to value goes up, yes, the property value comes down, but in fact, you still have a 10% cushion because the note balance is 80 thousand, and the property value is 90.

If you own performing notes with considerable equity in the property, it tends to take a much deeper correction to impact you as a lender. That’s an investment strategy we’ll cover in much greater detail in a later lesson. Let’s recap why note investing is so unique. Note investing is a nuanced asset class, which means less competition, and secondly, certain note investing strategies allow you to mitigate investment risk, which is vital because let’s face it. There will be another housing downturn. We’ll see you in the next lesson.

Looking for more helpful content to educate yourself about the Note Business? View all “Note to Self” educational videos on this page:


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