Other Avenues of Note Investing
Wholesaler · Newark, DE · Member since 2015 · 303 posts · 80 votes
Granted, I'm aware that the main discussion here is note investing on real estate, however, I'm slightly curious to hear some feedback.
Does anyone invest in other types of notes or paper outside of the real estate variety? I studied note investing a few years back and noticed there are other avenues such as annuities and other types of paper that generate a form of cash flow. Would love to hear who invest in notes outside of just real estate notes and any advice they can give for said notes.
@Dustin Verley In addition to real estate notes I've also worked with these cash flows:
I haven't personally worked with Auto notes but know several investors doing well in that arena as well.
The basic concept with all of these options is similar (purchase a future cash flow at a discount using time value of money calculations or IRR) but the documentation and due diligence will differ.
Turning off someone's car and stranding them who knows where and when. I don't think I'd have the stomach to do that. I didn't like being a residential landlord and having deal with the real misfortunes of tenants and so got out of that business. These days I prefer to make money off those who can better afford it and won't be shattered by a setback. Like lending money to investors, buying investment properties notes, factoring receivables, etc.
@Dustin Verley Have known others to invest in mobile home notes. Haven't done it myself but have been offered to buy. I'm a mobile home investor myself. Interesting topic!
@Tracy Z. Rewey I actually remember when I initially began looking into note investing some years back (probably about 10, roughly) - you and another gentleman I believe had a training course out, or book(s) or something. Ironic to actually cross paths here. :)
In either circumstance, notes have always been an interesting topic to me for the variety of what could be constituted a note and what you can actually add to your note portfolio to diversify other investment vehicles in the grand scheme of ones portfolio.
I do have a question though, do you know anyone who has invested in lottery winnings? This was one of the things I learned about in the training course I took back in 2009, and thought it was interesting (I'm assuming by lottery winnings, we're talking about those winners who opt in for the annuity payments.)
Thanks for responding!
@Tracy Z. Rewey I actually remember when I initially began looking into note investing some years back (probably about 10, roughly) - you and another gentleman I believe had a training course out, or book(s) or something. Ironic to actually cross paths here. :)
In either circumstance, notes have always been an interesting topic to me for the variety of what could be constituted a note and what you can actually add to your note portfolio to diversify other investment vehicles in the grand scheme of ones portfolio.
I do have a question though, do you know anyone who has invested in lottery winnings? This was one of the things I learned about in the training course I took back in 2009, and thought it was interesting (I'm assuming by lottery winnings, we're talking about those winners who opt in for the annuity payments.)
Thanks for responding!
Hello Dustin! It's great to connect with you here on BP. That gentleman was Fred, my husband of 20+ years. We actually met through the note business. We worked for an insurance and securities company that bought cashflows at a discount (including notes AND those lottery winnings you asked about).
Yes, the lottery payments purchased are from people that opt for the payment plan rather than the lump sum. Interestingly enough we first started buying those when a lottery winner filed BK. Sadly that is a common occurrence. People win the money, spend like crazy, forget about tax implications, and basically manage "a lot" of money like they managed their "little bit" of money before winning. Then they sell their future payments at a discount to fix their problems.
The returns are much lower than real estate notes but of course they are very secure (usually backed by AAA rated entities). However you need to have big chunks of money to invest with a lower cost of funds to make it work as an investor. You can also earn a fee for referring those deals to institutional level investors. Some of the companies out there that buy them include JG Wentworth, PeachTree Capital, Granoff Enterprises and others.
@Tracy Z. Rewey That's right, Fred... I knew it started with an "F" :)
In either circumstance, one of the things that intrigued me about notes back then, and still do to this day, is the ability to purchase full notes and/or partials, and how dynamic one can be in the purchasing of cash flows. I hope to one day get back in the habit of engaging in cash flow notes again.
Which leads me to one last question... in your journey in real estate investing, have you ever completed an owner finance deal with a homeowner and sold a part of your future cash flow? I'm curious as to the process. Did you create a contract between you and the "note buyer" who purchased those future cash flows (creating a partial note), separate from the agreement between you and the seller that is in place.
Hopefully that makes sense, if not, feel free to let me know and I'll clarify.
Which leads me to one last question... in your journey in real estate investing, have you ever completed an owner finance deal with a homeowner and sold a part of your future cash flow? I'm curious as to the process. Did you create a contract between you and the "note buyer" who purchased those future cash flows (creating a partial note), separate from the agreement between you and the seller that is in place.
Hopefully that makes sense, if not, feel free to let me know and I'll clarify.
Hello Dustin,
Yes we have. When it comes to owner financing I've sold property using it, bought property using it, and bought notes as the investor (after they were created using owner financing).
Most investors that buy partials will want a full assignment of the Mortgage/Deed of Trust and an endorsement of the original note. There is a Purchase agreement that outlines the terms of the note sale and disbursement of future payments (all in the case of a full sale or part in the case of a partial sale). This agreement is between the seller of the note and the buyer of the note (aka investor) and is different from the agreement between the seller of the property and the buyer of the property. (Of course with owner financing the seller of the property and the seller of the note are one and the same.)
When that Purchase Agreement is for a partial purchase of the note it will have clauses that deal with what happens if the note pays off early or stops paying and goes into default. We always encourage both the seller and the investor to consult with legal counsel to be sure they understand the pros and cons.
@Dustin Verley, @Edward B., and @Jay Hinrichs I feel embarrassed. After reading your responses to my post where some stated that every mortgage is a promissory note, I had a chance to sit down with a couple of notaries this past Friday when we closed on another few properties. And I asked them what I was signing and they said that they were promissory notes.
I have done over 50 closings in the past 3 years and the docs have always been referred to as mortgage documents so I thought they they were two separate types of loans and two separate types of documents (especially since the mortgage documents usually ran between 50 and 70 pages and required multiple signatures).
I learned that one of the several documents that I sign is a promissory note. So I learned something new over the weekend. That is the great thing about these open forums. More experienced people can let you know where your information is off.
@Shiloh Lundahl, I guess the important thing is that you have been making a killing doing it and presumably doing correctly whether you knew it or not. Here's to taking massive action.
@Edward B. Thanks for your encouraging words. We have done better than I expected when we starting out a few years ago. This is mostly due to being surrounded by awesome people who make up our team.
@Dustin Verley I "invested" in a revenue sharing note for a local brewery in Houston. They were expanding and adding a new location, so they essentially crowdfunded for at least part of the cost to build and for equipment. Supposed to pay out 1.9X over 6.5 years, and I get a free beer every day for life! Don't really have the money to tie up in RE notes (unless I'm looking in the wrong places seems like I need 10k+), so I'm possibly going to just do some smaller investments like the brewery one in other local businesses.
@Kevin Coggins A note for a brewery huh? I know some friends who'd enjoy that sort of investment...especially with the 'cash flow' you mentioned!
Could I ask for a few links on investing in RE notes for less than 10k? I should have that much pretty soon, and a note seems like a good short-term idea right now. Appreciate it.
@Kevin Coggins A note for a brewery huh? I know some friends who'd enjoy that sort of investment...especially with the 'cash flow' you mentioned!
Could I ask for a few links on investing in RE notes for less than 10k? I should have that much pretty soon, and a note seems like a good short-term idea right now. Appreciate it.
Assuming it pays out based on the terms, I'd be getting a 14% annual return, AND a free beer every day for life (the brewery is about 30-40 miles from me unfortunately). Did this with my brother and a few friends so should be fun once it's done. This type of note was through NextSeed (they are Houston based - I'm sure there's similar companies out there for more Cali specific offerings).
As far as the RE notes for under 10k, I really don't know anything about the company outside of what I read from a few threads on here. The company is called American Heritage Preservation, and I invested in their Note Fund. Literally did this the other day, so I haven't received any payments yet from them, but they advertised $100 minimum investments and elsewhere i looked it was 10k...whether that's a good or bad sign I don't know!