Although I consider my real estate to be passive from an IRS tax perspective, what many people (including myself) have failed to realize is how much active work is required for managing and maintaining property.
Property preservation companies deal with any physical issues with the property.
Since a performing note is secured by real physical property, there are multiple means of protecting a note investment, including… Owning a secured lien that is tied to property, especially if the property has equity, involves little or moderate risk because a note owner has a right to foreclose on the property and to recoup some, or all, of the initial investment.
What You Can Do with a Note Not only can purchasing notes be a unique way to obtain property (especially when buying vacant first mortgages), notes can also be flipped, rehabbed, and borrowed against or leveraged like real estate.
• Flipping or wholesaling a note Whether a note is performing or nonperforming, it can potentially be sold to an investor in any condition, at any time.
For example, in an upmarket, someone could purchase a performing note and hold onto it for a few months as they collect payments.
• Borrowing against the note The most versatile strategy of all involves an investor’s best friend: leverage.
As an asset, this note can then be used as collateral for a loan with a private-money investor; this is known as a collateral assignment of note and mortgage.
I’ve always subscribed to the idea of “there’s no such thing as a bad investment.” And I have found the most success comes from being diversified in multiple investment avenues, creating a synergy between asset classes — all in hopes to experience the advantages of as much as possible.
Have you invested in notes?