{"id":78121,"date":"2018-11-10T11:00:10","date_gmt":"2018-11-10T18:00:10","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=78121"},"modified":"2021-03-16T11:57:44","modified_gmt":"2021-03-16T17:57:44","slug":"2016-05-12-invest-real-estate-without-tenants","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2016-05-12-invest-real-estate-without-tenants","title":{"rendered":"How to Invest in Real Estate Without the Hassle of Tenants & Property Management"},"content":{"rendered":"

Often, fellow real estate investors ask me why I do notes or how I got into the note business. The truth is, though, that just about everyone is in the note business. People oftentimes have car loans, student loans, credit cards, or mortgages. It\u2019s just that they\u2019re usually writing checks to banks instead of receiving them “as the bank.”<\/p>\n

For me, becoming interested in notes happened almost by accident as my investing career evolved.<\/p>\n

At first, I was a real estate agent and a painting contractor who just happened to have good credit and the skills to fix up properties — and I thought the only way to get rich was by working hard and investing in physical real estate. At that time, I hadn\u2019t realized that all cash flow isn\u2019t created equal.<\/p>\n

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\nRelated:<\/strong> The Top 5 Resources to Educate Yourself on Real Estate Note Investing<\/a><\/em><\/p>\n

Owning Notes vs. Property Management<\/h2>\n

It wasn\u2019t until I joined a real estate networking group that I discovered hard money, private money<\/a>, and seller financed notes, along with other new concepts and strategies, such as owner financing and carrying a second mortgage as the seller.<\/p>\n

As I was looking to expand my personal portfolio of buy and hold\u00a0properties, I was running out of options with residential loans. It was either commercial loans with tougher terms, more fees, plus tighter margins due to lower cash flows, or I had to get more creative with things like lease options<\/a>, “subject\u00a0to” deals<\/a>, and private financing.<\/p>\n

The real game changer for me was realizing I could lend out money from my IRA and from HELOCs (Home Equity Lines of Credit) that I had on all my apartments and SFRs (Single-family Residential Properties). The yields were nice (15-18%, one year interest only, oftentimes with points), and I had several friends who could put my money to work. As my portfolio of short-term rehab loans grew, it became too obvious how easy this type of cash flow was to earn compared to property management.<\/p>\n

At the time, I had 40 units of my own, and I was managing approximately a hundred units as a RE\/MAX agent. Property management took a lot of time. I had to deal with tenants, repairs, contractors, townships, inspectors, and eviction court.<\/p>\n

With notes I had to deal with a homeowner\/borrower, but not with repairs, townships, contractors, or inspectors — and I rarely dealt with legal situations like court.<\/p>\n

I quickly noticed that this other form of cash flow backed by real estate without tenants was pretty cool. Up until this point, I managed properties for over 15 years the old-fashioned way, and I had even gone into commercial properties like mobile home parks, storage centers, and commercial office condos all in an effort to get away from the typical tenant. But nothing had compared to the ease of note investing.<\/p>\n

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Related:<\/strong> The 8 Non-Negotiable Habits of a Successful Note Investor<\/a><\/em><\/p>\n

Advantages of Notes<\/h2>\n

There are many advantages of note investing besides just cash flow. One is that you can start with deploying a small amount of capital. For example, some peer-to-peer lending companies allow you to purchase partials, or portions of a note, for as low as $25.<\/p>\n

Another advantage is that you can enjoy increased liquidity. Notes can be sold or recapitalized very quickly. You can even borrow against the note using a Collateral Assignment of Note and Mortgage. You can also sell a partial.<\/p>\n

Although you don\u2019t have depreciation deductions like you do in hard real estate, it\u2019s still much better than earned income, tax wise, since it\u2019s considered passive. It even has what I call “phantom\u00a0appreciation.” This isn\u2019t appreciation in the true sense of the word like in real estate, but if you own a partial equity note and more equity comes back in the marketplace, suddenly your note has become more valuable. Notes with a discount also have the potential kicker, which is the difference between the purchase price and the payoff, if the borrower were to pay off early.<\/p>\n

As you can see, owning notes can be a very scalable way to increase cash flow.<\/p>\n

We’re republishing this article to help out our newer readers.<\/em><\/p>\n

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So, what types of cash flow do you like?<\/em><\/p>\n

Be sure to comment below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Want to reap the benefits of real estate investing, but don’t want to deal with tenant and repair woes? There’s another way! Learn more here.<\/p>\n","protected":false},"author":807,"featured_media":93208,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524],"tags":[],"class_list":["post-78121","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/78121","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\/807"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=78121"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/78121\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/93208"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=78121"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=78121"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=78121"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}