How You Can Pay for College (And So Much More) with Note Investing

How You Can Pay for College (And So Much More) with Note Investing

3 min read
Dave Van Horn

Dave Van Horn is a veteran real estate investor and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, real estate investor, and private lender.

Experience
Beginning his career in construction and as a Realtor, Dave bought his first investment property in 1989. After years of managing his own construction business, Dave became a full-time real estate investor, specializing in fix and flips, buy and holds, and eventually commercial projects, before moving into note investing in 2007.

Over the past decade, Dave has also invested his time into becoming a connector and educator, who helps others achieve success. He focuses jointly on helping accredited investors build and preserve wealth with his group Strategic Investor Alliance and with general audiences through the annual MidAtlantic Real Estate Investor Summit.

Dave has also shared his strategies and experiences with real estate and note investing via hundreds of articles published on the BiggerPockets Blog and with his acclaimed book Real Estate Note Investing.

Press
Dave has been featured on the BiggerPockets Podcast twice (shows 28 and 273), as well as episodes of familiar podcasts, including Joe Fairless’ Best Ever Show, Invest Like a Boss, Cashflow Ninja, and many others. He also has been a guest of Herb Cohen’s on Executive Leaders Radio, which airs nationwide.

Accreditations
Dave is a licensed Realtor with eXp Realty with CRS and GRI designations.

Follow
Dave’s LinkedIn
PPR on LinkedIn
PPR on Facebook
Twitter @DAVIDAVANHORN

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It’s no secret that I love notes. And since my book just launched, I wanted to tell you the biggest reason why.

Whether you buy a performing or non-performing note, create it via seller financing or by lending hard money, the goal is for that note to perform. And when it’s placed with a servicer and it’s performing, I would argue it’s better than almost any property that cash flows the same amount.

Here’s why: it’s passive. And when it’s passive, things get easy. Or rather, they stay easy. There are no calls in the middle of the night from tenants, there are no townships hassling you, and there’s no property being slowly worn down until the day your tenant moves and you have to renovate. In fact, with institutional notes, if a borrower moves, they still have to settle the note, whether it’s by selling the property or renting it out.

Now if you’ve read any of my previous articles, you probably already know that. But what you may not know is that when you have a passive investment that’s a debt instrument like this, it makes paying debt with debt an interesting idea.

Related: An Introduction to Note Investing

College for a Fraction of the Cost

The more I mention this, the more people want to hear about it.

When I tell people this story, I often say, “Think back to your first note.” This provides context that we can all relate to. For some people, it was their car loan or their mortgage. My first note was my student loan, and that’s the same case for my son—only when he got to college age, I had already started in the note business and figured out that if we were to employ two different investing strategies together, we could pay for his college tuition with a fraction of the money.

So instead of my wife and I just writing a check, both my son and my wife took out student loans. The main reason we did this was because student loan interest can be deductible, and if we could use the borrowed money at approximately 6–7 percent to pay for tuition and our money stayed invested at approximately 12–18 percent, that alone would offset the cost of his tuition. But it gets better than playing the float with a higher yield paying investment.

Related: Cash Flow Notes: Step by Step How to Invest in Performing Notes

For some loans, there’s a deferral period—something like six months after graduation—usually put in place so the student can find a job by that time. In our case, this gave us even more time and more money to earn and gain more arbitrage. But again, that’s not all. The second part of the strategy has to do with the timing.

Right before payments on the student loan came due, we purchased a re-performing note with a similar monthly payment and a term that had a longer time frame than the student loan. We purchased this note for a significant discount. Keep in mind, a re-performing second lien can be purchased for anywhere from 40–60 percent of the payoff amount. So the payment we received from the note could be used to pay the student loan payment. And guess what? It still pays us even today! We managed to pay for roughly $100,000 worth of college tuition with just under $40,000! Pretty powerful stuff!

“Free” Insurance With Notes

And don’t think it can only be applied to college. I’ve even been able to obtain free or low-cost insurance by employing this same strategy. And it’s pretty simple.

1. Over-fund your permanent life insurance policy

2. Borrow the money out to buy a note (at 4–5 percent interest on the loan from the policy)

3. Buy a performing note with a 10–18 percent return

Then it’s just a matter of using that spread, or arbitrage, to go toward the loan payments, interest, and premium payments. And there you have it; notes will buy you “free” (or at least very low-cost) insurance! “Free” insurance and paying for college at a fraction of the cost is really just the tip of the iceberg in terms of what you can do with notes. What I love more than anything about explaining these strategies is when investors come back to me with new spins on the same idea.

Before you get started in the note business, it’s important to ask yourself: Are there things in my life that I can pay for with notes?

Do you want to invest but don’t want to deal with tenants, toilets, and termites? Do you want to make a long-lasting passive income stream—from paper? If you answered YES to any of these questions, this book is for you! Order today!

What in your life would you like to pay for with notes?

Let’s brainstorm strategies below!