{"id":185475,"date":"2025-11-03T11:19:17","date_gmt":"2025-11-03T18:19:17","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=185475"},"modified":"2025-11-03T11:19:20","modified_gmt":"2025-11-03T18:19:20","slug":"how-investors-are-using-fixed-notes-to-hedge-against-vacancy-risk","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-investors-are-using-fixed-notes-to-hedge-against-vacancy-risk","title":{"rendered":"How Investors Are Using Fixed Notes to Hedge Against Vacancy Risk"},"content":{"rendered":"\n

This article is presented by <\/span>Connect Invest<\/span><\/a>.<\/span><\/em><\/p>\n\n\n\n

Real estate investing is a great way to get passive income. But what happens when your passive investment requires active attention: your tenant ghosts, your <\/span>short-term rental<\/span><\/a> occupancy dips, or your rehabilitation takes three months longer than expected?<\/span><\/p>\n\n\n\n

Unfortunately, vacancy risk is something to consider when <\/span>it comes to<\/span> real estate <\/span>investing<\/span>.<\/span> According to U.S. <\/span>census<\/span> data, vacancy rates for rental housing <\/span>stood at 7%<\/span><\/a> for<\/span> the second quarter of 2025, while rental data <\/span>from Zillow<\/span> shows the <\/span>average rental price is on the decline<\/span><\/a>.<\/span> And while short-term rentals might have seen an increase in demand over the summer, their <\/span>general<\/span> volatility means <\/span>cash flow<\/span><\/a> isn\u2019t as stable as it <\/span>might be<\/span> with other types of passive investments.<\/span><\/p>\n\n\n\n

For income-focused investors, diversifying how you earn is as important as where you invest. That\u2019s why more landlords are allocating a slice of their portfolio to asset-backed fixed income. <\/span><\/p>\n\n\n\n

What Is Asset-Backed Fixed Real Estate Income?<\/span><\/h2>\n\n\n\n

With fixed income, you receive cash flow from your holdings, such as rental income. <\/span>With asset-backed income, instead of owning <\/span>one<\/span> asset, your investment is backed by a pool of assets that generate <\/span>income<\/span>, such as mortgages or rental <\/span>income<\/span>.<\/span> Financial institutions create these securities by pooling <\/span>together<\/span> cash flows <\/span>generated<\/span> from different real estate assets, then packaging and selling them to investors <\/span>in the form of<\/span> bonds or other securities.<\/span><\/p>\n\n\n\n

Investors receive a fixed-rate income generated from the underlying properties. These securities might be issued by large developers or even sold off by banks to raise capital. <\/span>This<\/span> allows investors to receive steady income without <\/span>having to manage<\/span> properties.<\/span><\/p>\n\n\n\n

Of course, the risk is that the underlying properties default or don\u2019t pay their rent, in which case, your income could dip or dry up. <\/span>This<\/span> is why it\u2019s <\/span>important<\/span> to understand the risks of underlying assets. <\/span>Because asset-backed fixed real estate income has several properties, the risk <\/span>is spread out<\/span> more than it might be if you <\/span>just<\/span> own and rent out one property.<\/span> <\/span><\/p>\n\n\n\n

How to Hedge Your Real Estate Investments <\/span><\/h2>\n\n\n\n

Any investor will want to hedge against potential losses, and real estate is no different. Many<\/span> financial experts will recommend diversifying portfolios<\/span><\/a> and investments, so if one investment is lost, you don\u2019t lose all of your income. <\/span>Since <\/span>there are<\/span> always <\/span>dips and gains in investments<\/span>, <\/span>diversifying allows<\/span> you <\/span>to<\/span> assume that some of your investments will do well.<\/span><\/p>\n\n\n\n

That same concept can <\/span>be <\/span>used<\/span> in real estate by investing in a variety of <\/span>different real estate<\/span> options beyond simply owning and renting <\/span>out<\/span> property.<\/span><\/p>\n\n\n\n

For example, with real estate notes, you can earn a set amount from your holdings. A real estate note is essentially an IOU\u2014a borrower\u2019s promise to repay a loan for real estate according to <\/span>certain<\/span> terms and conditions. The borrower pays back the loan with interest. As the holder of the note, you get the interest. <\/span><\/p>\n\n\n\n

There are several platforms that make<\/span> it easy to buy notes and <\/span>reap the benefits of<\/span> the interest <\/span>paid<\/span>.<\/span> This method is also flexible, since you don\u2019t have to hold these notes for long. You can buy short-duration notes, making it a good hedge against seasonal vacancies. <\/span><\/p>\n\n\n\n

Final Thoughts<\/span><\/h2>\n\n\n\n

There isn\u2019t always a guarantee of a fixed income <\/span>when you are<\/span> a landlord. Diversifying your real estate portfolio can help you hedge against the volatility of the rental market, for all lengths of stay.<\/span><\/p>\n\n\n\n

Discover how <\/span>Connect Invest<\/span><\/a> gives landlords a hedge against unpredictable rental income.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

This article is presented by Connect Invest. Real estate investing is a great way to get passive income. But what happens when your passive investment requires active attention: your tenant […]<\/p>\n","protected":false},"author":613681,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"tags":[],"class_list":["post-185475","post","type-post","status-publish","format-standard","hentry"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/185475","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613681"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=185475"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/185475\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=185475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=185475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=185475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}