Advice for Someone New to Note Investing?

Question

I’m exploring real estate notes as a way to diversify my portfolio, but I’m still in the early stages of learning. For those who’ve been doing this for a while, what’s one tip you’d give to someone starting out?

Elealeh Fulmaran · Answer

Start with one filter: only buy notes where you fully understand the borrower’s story and the exit before you wire a dollar. That means verify pay history, current balance and collateral value, then decide your plan—keep it performing, modify, or take the asset—before you bid. Clarity on data and exit beats chasing yield every time.

Jason Wray · Answer

Melinda,

Keep in mind it can be an investor's location and not the investor that may cause a problem or delays in starting/building a successful REI portfolio.  As an example I have investor's reach out all the time that live in state's like CA, NY, NJ, CT or other states that have higher home prices and ask for advice.

I generally point them to states like IN, OH, TN, FL, GA, NC and a few others cities where you can still buy a home for under $150K.  These homes carry great rents be it short term or long term.  You do not have to spend larger amounts of money to earn good rents if you buy in the right locations.

Build a strong Network to ensure you have a investment property friendly Realtor, Mortgage Banker that funds in all 50 states that offer more than just conventional loans, CPA that understands REI, LLC's, Schedule E and how to maximize your rental income and not reduce your W2 or other income by using the incorrect deductions that cannot be added back into your income.

Do not assume a Lender, Mortgage Broker, and Banker are the all the same.  Learn that FDIC Banks have the larger capabilities and offer better programs.  Do not let multiple people (loan officers) pull your credit just to have a conversation.  Use Bigger Pockets to Vet people like realtors, lenders, builders etc.

You also do not need to put 20% or more down on an investment rental stay away from those lenders or credit unions.  You can buy an investment home with a little as 10% Down 1 unit, Condo, or Townhome, if it’s a multifamily 2-4 unit as little as 15% down.  These program require showing income and good credit but they exist.

There are also programs like DSCR that Do not require income or employment they instead use rents to qualify plus down payment.  Great for self-employed, retired, or just have money/assets and no taxable job.  Fast and easy No job verification, No IRS income verification, No landlord experience (Some not all), great rates with good credit.

If you ever have any questions feel free to reach out there are a million other things but I hope that helped.  Feel free to check out my profile I am always happy to help and talk REI.

Diana Khan · Answer

That’s a really smart move looking at notes as a way to diversify One thing I’d say is take your time with the due diligence really dig into the borrower’s payment history the property value and where you sit in the lien position, especially the foreclosure process is slower since it has to go through the courts so you want to make sure your strategy matches that reality A lot of people find it easier to start with performing notes since they give steady income and less stress while you’re still learning the ropes and building confidence

Aaron Zimmerman · Answer

@Lauren Sanford thank you for sharing!

Lauren Sanford · Answer

@Aaron Zimmerman yes jkp we have Note Podcast and our last episode was on this tax question actually.  If you have questions feel free to reach out.

John Henry · Answer

One thing I’ve noticed is that a lot of new investors struggle not just with finding the right notes, but with building a reliable pipeline of opportunities. Closing deals faster often comes down to working only with verified sellers/buyers instead of chasing dead ends.

In my experience, having access to quality, transparent leads makes the process much smoother and helps avoid wasting time on bad data.

Aaron Zimmerman · Answer

Are there are any good podcasts anyone recommends on note investing?

from a tax perspective, it's more tax efficient to put the notes into a Roth or Ira. Otherwise, you'll get taxed at your marginal tax rate. So if you lend out $50k and have $5k in interest income, you'd pay tax on the $5k of income. Compared to a Roth or Ira, it would either be tax deferred or tax free.

Lauren Sanford · Answer

Welcome to the note space.  We have been in the space for over 15  years.  Just know that Notes is more "Legal" than "Real Estate". We hear a lot about Note Brokers so we did an episode on our Notes Show about this a there is a ton of misconceptions.  As we tell all our followers on other platforms, if you want to get started buy a Partial.  It gets your feet wet, you get to learn a lot and the risk is reduced.  Reach out if you need anything as we have tons of content!

Advice for Someone New to Note Investing?

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