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Note Investing and Retirement Planning

by Kevin Kaczmarek on March 2, 2012 · 8 comments

Kevin Kaczmarek and dad

I learned very early on that many real estate veterans are big fans of note investments.  It wasn’t until I had seen enough toilets, tenants and trash that I understood what they were getting at…… the consistent cash flow that comes from the note!!

I want to give you another perspective to consider in your investing business, note sales. The government and financial advisers will often tell you the best way to prepare for retirement is to invest in annuities. They provide a long term stream of payments and can last an entire lifetime. Whether an annuity is right for you as an investment is not the point of this article. Rather, I want you to think about the concept  in terms of real estate investing and specifically note investing.

My own father is a good example. He worked at an automotive company for 40+ years and is now retired. What is important to him is having enough income in retirement for his lifetime. He receives a pension,  social security, and has a 401k that was battered and bruised by the ebbs and flows of the market over the years. Therefore, because his returns are not consistent his 401k is a big concern. Enter notes as an investment option.  I taught him how to take that old 401k and roll it into a Self Directed IRA account.  That gives him the freedom to invest in alternative assets such as real estate and notes.  He was able to purchase 3 long term notes that are still accumulating cash in his account until he needs the income. He will be able to buy a 4th note in the next two years which will only compound his retirement income. Notes are an attractive investment because of their power to create multiple streams of income.

What makes it an even better retirement option is the greater rate of returns most note investments produce from the stream of payment. While a traditional market annuity is around a 5% return, note investors can see returns of 10% and greater. Notes not only keep up with inflation, they also beat inflation.  This is important because the cost of living and medical expenses continue to increase faster than inflation.

Next time you think about selling a note, think first about those you care about. At the very least you have the knowledge and power to help them invest in a note that’s secured by real estate and produces consistent returns over time.  My Dad will tell you he has more peace of mind and most importantly more income to enjoy retirement.

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{ 8 comments… read them below or add one }

Jeff Brown March 2, 2012 at 8:59 am

Your best post by far, Kevin. At least from where I sit. What’s even more attractive about notes, is that even if bonds go to 10% (I’ve seen CDs at over 15%), notes bought at discount will equal or surpass those yields.

We don’t talk enough. :)


Karen Rittenhouse March 2, 2012 at 11:50 am

How fantastic of you to make your dad such a priority.

How do you find notes?


Tod R March 2, 2012 at 7:37 pm

Very informative. I’ve never fully understood, therefore trusted, annuities. How do you analyze risk/reward on notes?


Kevin Kaczmarek March 5, 2012 at 5:02 pm

@Jeff Thanks so much! Looking forward to meeting face to face in a few weeks! Great point about the discounts


Kevin Kaczmarek March 5, 2012 at 5:04 pm

Thanks Karen!

There are quite a few ways I have found notes. In the past year my best source of finding notes is networking and teaching real estate investors how to properly setup a note.


Kevin Kaczmarek March 5, 2012 at 5:08 pm

Tod I am with you on the annuities part. The government came out in July of 2011 and said the best investment for those in retirement is an annuity. That scares me!

Your comment is going to be an upcoming post on the risk/reward. Several factors weigh in. Location of the property, seasoning of the note, experience of the note originator, note structure, loan to value. Those are a couple of factors for me.


jim March 5, 2012 at 5:53 pm

Sure the government wants us to use annuities to get stellar 3-4 percent returns! The big insurance companies have the government in their back pockets. They can then reap investment profits!


Tod R March 5, 2012 at 6:44 pm

You and Jim convinced me. No annuities!

I’m looking forward to your next post.

Thanks Kevin.


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