Note Fund vs Rental Property Investment

[Jeff Severson]

I am weighing the pros and cons of investing in note funds vs SFR property. Let's assume one-year note funds yield 8%, and the net operating income from a SFR is 5% of the total investment. Advantages of the note investment include a higher return on assets, a totally passive investment, and no selling costs. The advantages of the SFR include potential asset appreciation and a large pool of lenders that are willing to finance the investment. A note investor might invest $100,000 without borrowing any money, while a SFR investor might invest $100,000 and borrow $400,000 for a total investment of $500,000.

Of course, the relative investment risk needs to be considered as well.

I am wondering if note investors are able to find lenders that allow them to leverage their investments. If so, I might trade the potential for appreciation of SFR properties for the ease of note investing.

Any feedback is appreciated. 

[Jamie Bateman]

@Jeff Severson, Here is a blog post I wrote on BP that essentially addresses this topic: https://www.biggerpockets.com/...

For me (other factors being equal), it really comes down to whether you want a passive investment with no real tax benefits or an active investment with tax benefits. And your time horizon for holding the investment is also a key piece here.

Your question about using notes as collateral for a loan has been addressed in other threads on this forum, even recently.