They also bought a modest home using FHA financing<\/a> back when the prices were, um, “reasonable.” They’ve remained there, as the home has three bedrooms and a couple bathrooms. However, they wish they could move to a home with more square footage.<\/p>\n They have no other investments and pretty much live on a strict budget. They go out occasionally as a couple or family\u2014the normal stuff. Over the last 15 years, aside from their separate Roth IRA contributions, they’ve been able to put away a bit over $25,000 (what they call their “rainy day” fund).<\/p>\n Though Gary gets small raises every now and then, he’s lucky his income is even keeping up with inflation. The question begging to be answered is what are they gonna do for retirement income?<\/em><\/p>\n They have several choices. Here are just a couple options.<\/p>\n They can easily accomplish the latter through an investor group model. They have neither the knowledge, expertise, nor experience to invest in notes by themselves.<\/p>\n In fact, investors moving into discounted notes without experience or professional advice are far more likely than not to end up with an advanced degree from Hard Knocks University. I’ve seen it far too often. Don’t let note investing mirror amateur night at the local comedy club.<\/p>\n Related:<\/strong> How Retirement Contributions Are Saving One Real Estate Investor $53K in Taxes<\/a><\/em><\/p>\n Last month was the 40th anniversary of my first discounted note purchase. In that time, I’ve yet to have a note produce an overall yield\u2014from day one in ’til last day out\u2014of less than 10%. Every now and then, but rarely, I’ve had a non-performing note\/land contract return less, or even lose money. But the returns on non-performing are so much higher than performing that the occasional loser is less than a blip on the screen, relatively speaking.<\/p>\n How high can the yields be on non-performing liens<\/a>? Cartoonishly so. But the super high yields are just as much outliers as the losers are IF it’s done professionally.<\/p>\n Those of you wishing to get your foot in the door of non-performing notes\/land contracts secured by real estate should always keep in mind that those much higher yields come with equally higher risk. Most folks don’t like talking about it, but there it is. The higher the risk, the higher the yield, and the bigger chance of failure.<\/p>\n Don’t kid yourself. This is why using a pro to mitigate that risk\u2014non-performing OR performing\u2014is a necessity if you’re serious. This point cannot be over emphasized.<\/p>\n If Gary and Nicole keep putting in the modest sum of $250\/month a piece into their Roth IRAs for the next 25 years and put that money into discounted notes\u2014performing\u2014let’s see what happens. In order to make the point more compelling, we’re gonna assume they average a paltry 8% overall annual yield<\/strong>, something I’ve not seen in my professional career as it relates to discounted note yields.<\/p>\n Present value =<\/em> $115,000<\/p>\n Annual investment (payment) =<\/em> $6,000<\/p>\n Time (n) =<\/em> 25 years<\/p>\n Interest\/yield (i) =<\/em> 8%<\/p><\/blockquote>\n They’d end up when Gary turns 65 with about $1.25 million<\/strong> in their two Roths combined. If we extend the lousy 8% example annual return ’til they both die, that’s a tax-free income BEGINNING at around $100,000 a year<\/strong>\u2014wait for it\u2014tax-free. <\/strong><\/p>\n Why do I say “beginning”? Simple, cuz their portfolio of performing notes\/land contracts will continue to do what they do, which is to pay off early in a totally random manner. (Most pay off in a three to nine year range.)<\/p>\n Inside the Roth, there’ll be no taxes on the profits. The money will be reinvested in larger liens with slightly larger monthly payments. This means, in essence, that they’ll forever be getting random “pay raises” their entire retirement.<\/p>\n How freakin’ cool is that?!<\/p>\n![\"real](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/01\/apartment-building.jpg\" "\\"\\"")
<\/p>\nWhat Are Their Options?<\/h2>\n
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Side Note on Note Investing<\/h3>\n
Back to the Hypothetical Couple<\/h3>\n
The Analysis<\/h2>\n
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