Unlocking the Power of Note Investing: Debunking Myths & Proven Strategies for Success
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When it comes to real estate investing, note investing is often overlooked due to a range of misconceptions. From needing millions of dollars to the idea that it’s too complicated for the average investor, the myths surrounding note investing can make it seem out of reach.
In this blog, we’ll debunk some common myths about note investing and share proven strategies to help you get started on your journey to building wealth through this often-underestimated investment vehicle.
What is Note Investing?
Scott explains that note investing involves buying the debt on a property instead of the property itself. When you purchase a note, you effectively become the bank, which gives you control over the debt payments, but not the property ownership unless the homeowner defaults. If they stop paying, you have the option to foreclose and take possession of the property.
Wholesaling vs. Note Investing
Many people are familiar with wholesaling in real estate, where you put a property under contract and sell that contract to an end buyer for a fee. However, Scott clarifies that you can wholesale notes too. It’s essentially flipping paper, but instead of flipping the property, you’re flipping the debt. This is a great way to get started in the note business without needing a large amount of capital.
Leveraging Other People’s Money (OPM)
Scott highlights the power of using other people’s money in real estate, especially for note investing. By partnering with private investors or individuals using self-directed IRAs, you can fund your deals without needing all the capital upfront. He encourages listeners to reach out to people in their network or those who have already invested in properties through their IRAs, as they are likely to be open to investing in your note deals.
Debunking Myths About Note Investing
- Myth #1: You Need Millions to Invest in Notes
One of the most persistent myths is that note investing requires vast sums of money. Many people assume that only institutional investors or extremely wealthy individuals can afford to buy mortgage notes. The truth is that you don’t need millions to get started. In fact, some notes can be purchased for a few thousand dollars, making this an accessible option for a wide range of investors.
Scott Carson, a veteran in the note investing space, explains that notes are often available at significant discounts, particularly when the loan is non-performing. This provides an opportunity for investors to enter the market without breaking the bank.
- Myth #2: Note Investing Is Too Complicated for Beginners
Another common misconception is that note investing is too complex for the average investor to understand. While it’s true that note investing comes with its own set of challenges, it’s not insurmountable for beginners. With the right guidance, tools, and resources, even those new to investing can grasp the essentials of buying and managing notes.
The key is to start with education. There are plenty of free and paid resources available, including webinars, courses, and podcasts that break down the note investing process step by step.
- Myth #3: Note Investing Is Riskier Than Traditional Real Estate Investing
Many believe that note investing is riskier than traditional real estate investing because you’re dealing with loans rather than physical properties. However, Scott Carson highlights that note investing can actually offer more control over your investment than buying a physical property. You have the option to work out payment plans with borrowers, modify loans, or even foreclose and take possession of the property if necessary.
With the proper due diligence and understanding of risk management strategies, note investing can be just as safe—if not safer—than other forms of real estate investment.
Proven Strategies for Successful Note Investing
Now that we’ve debunked some common myths, let’s explore a few proven strategies that can help you succeed in note investing.
- Start with Performing and Re-Performing Notes
If you’re new to note investing, it’s wise to start with performing or re-performing notes. These are loans where the borrower is making regular payments, which reduces the risk of default. You’ll benefit from steady cash flow while gaining valuable experience before moving into non-performing notes, which can be more profitable but also riskier.
- Focus on Due Diligence
Due diligence is crucial in note investing. Before purchasing a note, make sure you thoroughly review the borrower’s payment history, the value of the underlying property, and the terms of the loan. Scott Carson emphasizes the importance of knowing the full story behind each note to avoid surprises down the road. A well-researched note is less likely to bring unexpected risks.
- Build Relationships with Note Brokers
Networking with experienced note brokers can open up more opportunities for you as an investor. These brokers often have access to notes that aren’t available to the general public. By building strong relationships within the industry, you’ll gain access to better deals and insider insights that can help you grow your portfolio more efficiently.
- Invest in Non-Performing Notes with a Strategy
Non-performing notes (NPNs) can be more lucrative than performing notes, but they require a solid strategy. When buying an NPN, you should have a clear plan—whether it’s working out a loan modification with the borrower, offering a short sale, or even pursuing foreclosure. These strategies, when implemented correctly, can help turn a non-performing note into a profitable asset.
- Leverage Industry Tools and Resources
To succeed in note investing, take advantage of the many tools and resources available to investors. From online calculators that help you assess the profitability of a note to note investing platforms that offer easy access to inventory, leveraging these resources can streamline your investment process. Scott Carson recommends staying up to date with industry podcasts, attending note conferences, and participating in online forums to stay connected and informed.
Conclusion
Note investing is an exciting and often underutilized avenue for building wealth. By getting an understanding of what it is, debunking these common myths and implementing proven strategies, you can confidently explore the world of note investing and start generating passive income.
Remember, successful note investing takes time, patience, and ongoing education. For more insights and practical advice, check out our podcast episode on The Money Exchange Podcast with Scott Carson. Learn from his years of experience and take the first step toward mastering the world of note investing today!