As we’ve discussed this week, investment real estate can serve as a cornerstone for passive income. Real estate is a timeless hard asset that’s tried and true.
Today we’re going to talk about a real estate hack that can juice your cash flow and reduce risk. Let’s start by setting the stage…
While real estate is tried and true, it also comes with periodic challenges.
As an investor, we’re on the hook for repairs and maintenance items from time to time. And then turnover costs can get a little steep whenever a tenant moves out. Those costs eat into our cash flow.
Mortgage notes fix that…
When you invest in a mortgage note, you’re buying somebody else’s mortgage. Then, when they make their monthly payment, the principal and interest (P&I) portion of it comes to you.
And get this – there’s an active secondary marketplace for mortgage notes that’s open to anybody. Anyone can invest in these things. There are no restrictions or accreditation limits.
Of course, that marketplace is somewhat small… because very few people know about it. Even seasoned investors don’t know that it’s possible to buy mortgages. I didn’t myself until a few years ago when a savvy gentleman showed me the way.
When you own the mortgage and not the property, you aren’t on the hooks for repairs and maintenance. That makes your cash flow steady and predictable.
Plus, homeowners rarely default because they’re tied to their home. That’s especially true if you focus on mortgages where the homeowner already has considerable equity in their property.
And if that weren’t enough, mortgage notes produce stronger monthly cash flow as compared to real estate in the current climate. I’ve seen notes selling in the $20,000 – $40,000 range that produce between $500 and $600 a month in passive income for investors.
That means we have to save up a little bit to invest in notes… but there are plenty of affordable options available to us.
And here’s the kicker – we’re talking totally passive income.
We use a professional loan servicer who collects payments, sends out statements, and provides customer service for homeowners. The servicer keeps a small amount of the payment – maybe $25 a month – and then deposits the rest into our bank account.
So the servicer does all the work… and we make most of the money. The homeowner has no idea that we exist. That’s a pretty sweet deal…
Now, there are a few trade-offs.
Mortgage notes are not a hard asset and they won’t appreciate in value, as physical real estate can. Instead, the value of a note falls with each monthly payment made.
But guess what? These trade-offs aren’t a problem if make our mortgage notes bulletproof with a strong foundation. We’ll talk more about that tomorrow…
-Joe Withrow
P.S. We’re going to discuss mortgage notes in more detail and walk through a few real-world examples at our webinar next week. Mortgage notes are a key piece of the puzzle as we begin building streams of extra income.
If you’re interested, the webinar will start at 3:00 pm Eastern on Wednesday, May 14. We’re calling it The Strategic Investor’s Playbook: Bulletproof Money, Consistent Cash Flow.
Space is limited, so please register in advance. You can do so at: The Strategic Investor’s Playbook Webinar Registration