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

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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

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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!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several 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, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


  1. Thomas Phelan on

    I think putting aside sufficient money to insure a child will have all four-years of tuition available is an excellent idea.

    Of course what college or University a child attends will dramatically determine the amount of funds necessary. A child going to a state college is one thing, going to an Ivy Leagues is another, i.e. it can cost 100s of thousands of dollars more.

    I never see Life Insurance suggested and yes I know, your eyes are glazing over and you are reaching for the TV remote for “Law and Order” reruns.

    But consider this, a well designed IUL Policy (Index Universal Life) with a guaranteed “No Loss” provision can post a respectable 7% annual return. Equally as important, when your child reaches majority he/she will have a Policy with extremely low premiums. Don’t you wish your Mom and Dad had taken a $500,000 IUL Policy out on you when you were in diapers?

    Also, what if during the 15 – 20 years of raising a child he/she becomes uninsurable? Everyone will be relieved that a respectable amount off Life Insurance is in place.

    Just a thought.

  2. Nick B.

    What about tax treatment of interest income vs. rental income? 10% rental income can be tax deferred forever while 10% interest income is a subject ordinary income tax rates.
    Same with capital gains. There is no 1031 for notes while capital gain taxes can be kicked down the road forever for a rental property.

    • Dave Van Horn

      Hi Marina,

      I talk about this in my book but it’s a lot like Real Estate. Meaning there could be opportunities anywhere and there’s more than just one way to buy. And for serious note buyers, it tends to be more relationship based rather that simply transnational

      So the short answer is: Notes can be found through a variety of avenues including (but not limited to): Loan Exchanges, Servicers, Note Funds, Note Brokers, and even individual note sellers (which you may find at your local REIA, LinkedIn, or here on BP).

      And to answer your other question. These notes paying 12% to 18% returns are not the same exact mortgages that are currently at 5% interest rates. These notes have defaulted and since been modified.e This default is the reason they’re purchased by a company like mine at a discount – usually in bulk. So it’s important to remember we’re buying it for less than what’s owed (a percentage of Unpaid Principal Balance or Fair Market Value).

      Then we’re re-modifying these loans with a new payment plan that can include not only the principal payment but also interest, arrears (missed payments), and any corporate advances (like HOA fees, back taxes, etc). So now this asset has an exponentially higher return than the original interest rate on the note.

      Hope this answers your question! Do let me know if you have any others.


    • Dave Van Horn

      Hi Ali,

      The answer is yes, all of the above! It’s really wherever you can find them. There are two note exchanges that are pretty popular that may be the most direct and accessible of the sources you mentioned, FCI Exchange and Loan MLS.

      Hope this helps!


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