{"id":97531,"date":"2018-04-07T11:00:30","date_gmt":"2018-04-07T17:00:30","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=97531"},"modified":"2024-02-24T11:53:39","modified_gmt":"2024-02-24T18:53:39","slug":"how-to-pay-for-college-with-notes","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-to-pay-for-college-with-notes","title":{"rendered":"How You Can Pay for College (And So Much More) with Note Investing"},"content":{"rendered":"

It\u2019s no secret that I love notes. And since my book just launched<\/a>, I wanted to tell you the biggest reason why.<\/p>\n

Whether you buy a\u00a0performing or non-performing note<\/a>, create it via seller financing or by lending hard money, the goal is for that note to perform. And when it\u2019s placed with a servicer and it\u2019s performing, I would argue it\u2019s better than almost any property that cash flows the same amount.<\/p>\n

Here\u2019s why: it\u2019s passive. And when it\u2019s 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\u2019s 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\u2019s by selling the property or renting it out.<\/p>\n

Now if you\u2019ve 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\u2019s a debt instrument like this, it makes paying debt with debt<\/em> an interesting idea.<\/p>\n

Related:\u00a0<\/strong>An Introduction to Note Investing<\/a><\/em><\/p>\n

College for a Fraction of the Cost<\/h2>\n

The more I mention this, the more people want to hear about it.<\/p>\n

When I tell people this story, I often say, \u201cThink back to your first note.\u201d 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\u2019s the same case for my son\u2014only 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.<\/p>\n

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\u20137 percent to pay for tuition and our money stayed invested at approximately 12\u201318 percent, that alone would offset the cost of his tuition. But it gets better than playing the float with a higher yield paying investment.<\/p>\n

\"\"<\/p>\n

Related:<\/strong>\u00a0Cash Flow Notes: Step by Step How to Invest in Performing Notes<\/a><\/em><\/p>\n

For some loans, there\u2019s a deferral period\u2014something like six months after graduation\u2014usually put in place so the student can find a job by that time. In our case, this gave us even more time<\/u> and more money <\/u>to earn and gain more arbitrage. But again, that\u2019s not all. The second part of the strategy has to do with the timing.<\/p>\n

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\u201360 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!<\/p>\n

\u201cFree\u201d Insurance With Notes<\/h2>\n

And don\u2019t think it can only be applied to college. I\u2019ve even been able to obtain free or low-cost insurance<\/em> by employing this same strategy. And it\u2019s pretty simple.<\/p>\n

1. Over-fund your permanent life insurance policy<\/p>\n

2. Borrow the money out to buy a note (at 4\u20135 percent interest on the loan from the policy)<\/p>\n

3. Buy a performing note with a 10\u201318 percent return<\/p>\n

Then it\u2019s 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 \u201cfree\u201d (or at least very low-cost) insurance! \u201cFree\u201d 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.<\/p>\n

Before you get started in the note business, it\u2019s important to ask yourself: Are there things in my life that I can pay for with notes?<\/em><\/p>\n

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\u2014from paper?\u00a0If you answered YES to any of these questions, this book is for you! Order today!<\/a><\/em><\/div>\n
\"\"<\/a><\/div>\n

What in your life would you like to pay for with notes?<\/em><\/p>\n

Let’s brainstorm strategies below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

When a note is placed with a servicer and it\u2019s performing, I would argue it\u2019s better than almost any property that cash flows the same amount. Here\u2019s why.<\/p>\n","protected":false},"author":807,"featured_media":98065,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7406],"tags":[],"class_list":["post-97531","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-creative-financing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/97531","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=97531"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/97531\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/98065"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=97531"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=97531"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=97531"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}