A Change in Strategy - Hybrid Notes/Buy & Hold Rental

8 Replies

Good Morning BP! 

I've been away from the community for some time while I've been stationed overseas and I'm looking to get some feedback/constructive criticism on an addition to my investment strategy. When I was younger I had some mentors tell me that while the Military moves you around, buy a house at each location and rent it out. That way when you retire you have a number of rentals as passive income. I've used that strategy and have acquired 2 rental properties (one in Florida and one in New Jersey). However I've been overseas for years and have not bought in England and Guam (current location). My family and I plan on moving back to the states this summer and using the remainder of our VA allowance to buy our next residence. Here comes the change in strategy...

I've been listening to the BP podcast recently and came across Note investing.  I thought this would be a great additional supplement to the buy & hold rentals as we continue to move.  We've saved about $60K and I'm looking to start with a small note ($10-20K) and then when our savings is replenished from the note payments plus monthly savings buy another one similar to the Bond Ladder strategy (https://www.schwab.com/public/schwab/investing/accounts_products/investment/bonds/individual_bonds/bond_ladders)

I'm looking to invest my own funds and I'm targeting passive cash flow.  I've been reading BP posts and listening to the NoteMBA podcast to get familiar with this investment strategy.  So far it looks like I would be looking for 1st position performing notes.  Am I on target here or should I be looking for something else that I don't know of yet?  I'm looking to make our first purchase before the end of the year, so I have some time to research/find a Note that works.  Also, where would be the best place to obtain a Note like this?  I've read that I probably won't pick one up from a bank so a Note Marketplace would be the ideal option. (NoteDirect?)  Finally, I haven't found any details on what documents you'd need to have to file your taxes.  I send all my documents to an accountant...just wondering what additional documents I would need for the Note.  Thank you for any comments/feedback you can provide.  I really appreciate it!


$10k, $20k performing first position notes will be hard to get

@Roman M. - Would it be a better idea to start off with a joint venture with a seasoned note investor with my $10-20K? 

Originally posted by @Patrick Kucera :

@Roman M. - Would it be a better idea to start off with a joint venture with a seasoned note investor with my $10-20K? 

No, it's not enough money to do a JV partnership. Depending on where you are, just starting an entity to hold the note can cost you 1k so 10% of what you're looking to invest.

With that said, you CAN find a re-performing 2nd in the 10-20k range with equity protecting your position. That would get you started, but in that range you're most likely looking at payments in the low 200s, so it's not super exciting and far from the numbers gurus will tell you that you can make with notes.

The strategy you're working on is the one I'm working on also. Watch some of Gordon Moss' presentations, that's what he talks about. Notes and rentals complement each other perfectly.

@Patrick Desjardins - Thank you for the assessment and tip on the presentations.  I hope to learn more from them and get closer to my first Note!

Hi @Patrick Kucera for that budget you may want to purchase a partial, which is the first 'X' months of payments from a longer term note, where most of the P&I payment is interest. Feel free to contact me via PM if you would like more info on how partials work. 


@Bob Malecki - Thank you for the recommendation.  I'm willing to learn about all my options to take advantage of my best choice.  Thank you for the offer to teach!


@Patrick Kucera  

First and most importantly, Thank You and your family for your service to our country.

Congratulations on investigating notes!! They have a LOT of attributes that parallel buy and hold. There are many differences as well. Most notably, no tenants, no toilets, and no trash.  

The single biggest detriment to notes is that the cash flow ends at some point. That can be mitigated by setting aside "reserves" just like you would for a buy and hold property, but instead, you deploy those reserves into additional notes.

I have NOT purchased a performing first.  I'm learning about and have successfully invested in three non-performing firsts.  Buying re-performing notes from entities that invest in non-performing notes is one source to consider.  The last statement is NOT a solicitation as I have NO inventory to sell!!!  :-)   

More seriously, you can find NPN investors here on BP. Be careful as re-performing, by definition, means that the note was NOT performing. This is NOT any type of statement regarding any investor on, or off of BP. It is recognizing the fact that notes ARE different. As Bill Gully states so clearly; notes are finance, NOT real estate. There are a whole BUNCH of moving parts and laws that are very different from real estate. This is NOT to turn you away from notes. It is just so that you enter the investment with eyes WIDE open and with full knowledge that the learning curve is standing straight and tall.

If you have not already heard of @Dave Van Horn , I strongly suggest that you search for his blog on BP and binge out.  Dave's company PPR is a great resource as well.

I'd like to recommend that you visit this website: https://papersourceonline.com/

When you return to the states; the Mencarows host a wonderful event in Las Vegas every April.  There is NO selling from the stage and you will learn more than you can imagine about investing in performing notes and alternative streams of cash flow.  The separate site for the live event is http://papersourceseminars.com/

If you are able to attend, I promise it will be very helpful and enlightening.

I hope this is helpful.


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