The Top 10 Advantages of Note Investing Over Traditional Real Estate (2024)

Real estate investing has long been considered a lucrative avenue for building wealth, but it's not the only game in town. In recent years, note investing has emerged as a viable and advantageous alternative. Notes, also known as mortgage or real estate-backed loans, offer a unique investment opportunity with several distinct advantages over traditional real estate investing. In this article, we'll explore the top 10 advantages of note investing and why it's worth considering as a part of your investment strategy especially given the current market conditions.

1. Diversification: Note investing allows you to diversify your investment portfolio beyond physical properties. By investing in mortgage notes, you gain exposure to a different asset class, reducing the risk associated with having all your investments tied up in real estate. (We also buy in a variety of states without having to focus on just one market or state like most investors.)
2. Passive Income: Unlike traditional real estate investing that often requires active involvement in property management, note investing provides an opportunity for passive income. As a note investor, you earn regular interest payments without the responsibilities of property maintenance or tenant management. (We also utilize vendors like servicing companies and attorneys to handle the heavy lifting.)
3. Reduced Risk: When you invest in mortgage notes, you're not exposed to the same risks associated with property ownership, such as vacancies, property damage, or market fluctuations. Notes are secured by real estate collateral, providing a level of security and reducing the overall investment risk. (We only focus on buying first liens to reduce our risk and be in the driver's seat.)
4. Lower Capital Requirements: Note investing allows you to enter the real estate market with lower capital requirements compared to purchasing physical properties outright. You can participate in note investments with smaller amounts, making it more accessible to a wider range of investors. (We've closed on individual notes from $7 (yes, seven bucks) up to $1 million dollars!)
5. Flexibility: Note investing offers flexibility in terms of investment options. You can choose to invest in performing notes, where the borrower makes regular payments, or non-performing notes, which provide opportunities for restructuring or foreclosure. This flexibility allows you to tailor your investment strategy to your risk tolerance and financial goals. (Steady returns with performing notes and higher returns with a bit more risk with non-performing notes!)
6. Enhanced Cash Flow: With note investing, you can often achieve higher cash-on-cash returns compared to traditional real estate investing. The interest earned from mortgage notes can provide a steady stream of cash flow, making it an attractive option for income-oriented investors. (Investing on auto-pilot!)
7. Shorter Investment Horizon: Note investing typically offers shorter investment horizons compared to physical real estate. While real estate investments often require long-term commitments, note investments can provide quicker returns as borrowers pay off their loans or when restructuring options are exercised. (You aren't tied into note deals for 30 years!)
8. Potential for Higher Returns: Note investing presents opportunities for attractive risk-adjusted returns. By investing in distressed notes or participating in loan workouts, you can potentially acquire notes at a discount and later sell them at a higher value, thus capturing a profitable return.
9. Less Competition: Compared to traditional real estate investing, note investing often faces less competition. This can provide an advantage when searching for investment opportunities and negotiating favorable terms. Additionally, the less crowded note market can offer a more transparent and streamlined investment process.
10. Reduced Time and Effort: Note investing requires less time and effort compared to actively managing physical properties. Without the need for property inspections, repairs, or dealing with tenants, you can focus on analyzing potential investments, conducting due diligence, and managing your portfolio with relative ease. (Many of our students and investors are only putting in a few hours a week into their note businesses.)

In conclusion, note investing offers a compelling alternative to traditional real estate investing, providing numerous advantages such as diversification, passive income, reduced risk, and greater flexibility. With lower capital requirements, enhanced cash flow, and the potential for higher returns, note investing has gained traction as a viable investment strategy. As you consider your investment options, it's worth exploring the world of note investing and tapping into its unique benefits.

Check out the upcoming Note Buying Workshop HERE!