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October 31, 2019
After attending Planning for Prosperity, it is clear that a lot of investors are looking for alternatives to the stock and bond market. Most of those investors are looking for passive investment opportunities in the real estate market.
As an author, podcaster and active blogger, I have consistently been studying and writing about the real estate and real estate finance industry for 9 years. All of my research indicates that there are the two opportunities passive investors who want high returns with low risk should have in their portfolio. Both of these investment opportunities are in the financial instruments of the real estate industry (real estate notes & mortgages).
In the years following the crash, record inventory levels of performing notes (PL) where created. Some were created as a result of a loan workout while others were created to sell newly renovated property. Much of that inventory has now been seasoned for 6 years or more. In addition, property values have increased nationwide, making these notes an outstanding value.
The beauty of these notes is that with minimal amount of effort, an investor can run his or her initial due diligence in about the same time it takes to analyze a stock. If it passes the initial due diligence phase, the investor can lock up the deal and finalize with a secondary level of due diligence such as appraisal, external property inspection or title report before financing or closing the deal.
If you close a deal this month, you get paid next month and every month thereafter for as many payments that you purchased. The payments are collected, sometimes auto debited, by servicing companies that then forward the payment to you. Passive, secured and high yielding.
Without a doubt, the best turn-key notes technique is to by short term, 2 to 5 year, partials on PL’s. Your yield will be typically between 7%-11% and your investment will be backed by a property worth 2 to 3 times what you have in it. In addition, the loan will already be third-party serviced and you will be buying from a note seller who has a vested interest in getting the income stream back at some point in the future.
The below illustration will lay out this investment:
You don’t need to travel, or canvas neighborhoods and the payments are automatically deposited every month while you sleep.
Recent changes to the Securities Act has opened up new opportunities for accredited and non-accredited investors who have small to very large investment accounts inside or outside of their tax deferred accounts. These funds pool investors capital together to buy diversified real estate backed mortgages at deeper discounts while managing the performance of these assets.
I prefer these funds over more traditional real estate funds because the inventory and discounts on notes is simply better and will be for years. For example, just in the past three months Fannie Mae has sold over 55,000 notes totaling $9.2 Billion in un-paid balance. That brings their 2019 total volume to about $19 Billion in UPB. Keep in mind, that’s just Fannie Mae!
With the discount (up to 70% of property value) that these mortgage-note investment funds get, and the loan modifications they workout, they can afford to pay their investors upwards of 10% per year. Compare that to the current real estate cap rates below and you will see why these funds can yield more to the investor.
Be sure to look for a fund that requires quarterly or at least semi-annual reports, good management and a complete disclosure of what type of notes they invest in and how you, the investor, is paid. The fund circular should have all of the details.
These funds can also have lower investment minimums, which is perfect for the smaller balanced retirement accounts. You may even be able to deposit small monthly investments such as rent payment or other income streams into the fund on a monthly basis.
NuView Trusts’ Planning for Prosperity Event had several of these fund companies in attendance including-full disclosure- one that I am involved with as a partner and investor, the MWMfund. Find the one that fits you best.
#1 Best Seller: Real Estate Without Renters
Awarded 2019 Note Educator of the Year
The Kevin Shortle Show Podcast (available everywhere)
*This site contains educational content provided by third parties. NuView Trust does not endorse, recommend or approve any of the companies or individuals or investment vehicles or strategies that may be discussed. NuView Trust encourages clients to seek legal or tax advice as necessary and to perform their own due diligence before engaging in any investment vehicle or strategy.