The first snowfall of the new year fell upon the Virginia highlands last night. We awoke to this scene:
It’s a wet, thin snow… which is not nearly as pretty as the fluffy powder that blankets the trees. The wet snow is also decidedly more difficult to brush off of the solar panels atop my office roof.
Still, I never tire of seeing a winter wonderland in the mountains. It’s been nearly twelve years since we’ve been at this property – and we get excited for the prospects of snow every time.
With that said, let’s shift gears today…
We’ve been talking about the economic and societal implications of America’s Great Reorganization for months now. Today, let’s talk about investing in an America First world.
If our thesis comes to pass, we’ll have entered into a world that none of us have known before—a deflationary world.
I never thought for a second that such a thing would be possible just six months ago. But if the pieces of the puzzle fall into place the way we’ve envisioned in these pages, we’ll find ourselves in a world where the US money supply is shrinking, as is the federal government itself.
Mind you, that’s a big if. There are plenty of forces lying in wait to knock the reorganization train off its tracks.
So we’ll have to be vigilant here. But the forces driving America’s Great Reorganization forward are driven by more than just self-interest—they are driven by self-preservation. I imagine that’s the most powerful motivator of them all.
That being the case, I think a unique asset class will provide investors with an interesting opportunity… if they know where to look for it.
Most investors know that there’s an active market for real estate in every major city in the US. People buy and sell real estate in this country every day. I’m an active real estate investor myself.
I don’t think many investors realize that there’s also an active market for mortgage notes in the US as well. We’re talking about mortgages on single family homes and parcels of land throughout the country.
At any given time there are hundreds of these mortgages for sale. And they are available to retail investors at will – no accreditation needed.
Whenever we finance a home with a mortgage, there’s a clause in the agreement that says the lender most notify us in writing if they sell our mortgage to somebody else.
I’ll bet many of us have experienced this before. We get a letter in the mail saying that our mortgage was sold or transferred, and it tells us how to make our mortgage payments going forward.
When this happens, we tend to assume that the bank just flipped our mortgage to whichever bank we now have to make our payments to. But that’s not necessarily the case.
Insurance companies, pension funds, hedge funds, and note brokers each buy mortgages like this on a regular basis – and in multi-million dollar blocs. But these entities don’t service the mortgages themselves.
Instead, they contract with specialized loan servicing companies or the loan servicing division of large financial institutions to do so for them. The loan servicers handle all the administrative work and provide customer service… then they collect the mortgage payments and deposit the funds into the note-owner’s bank account.
And here’s where it gets interesting…
Some of these mortgages that the banks unload find their way into the secondary market at affordable prices. That’s where strategic retail investors can buy them.
When you purchase a mortgage like this, you are buying the homeowner’s debt with the underlying real estate as collateral. Then when the homeowner makes their mortgage payment, the principal & interest (P&I) portion comes to you. Their mortgage payment becomes your cash flow.
Yet, you can use the same loan servicing companies that the institutional investors use. The servicers charge a very small monthly fee – and then they do all the work for you. The money just shows up in your bank account each month.
So when we get that letter saying that our mortgage was sold and we need to make our payments to a new bank going forward – that new bank might simply be the loan servicer, not the owner.
It might be that our savvy neighbor down the street bought our mortgage… and now our mortgage payment goes to him each month.
This is the other side of the coin to investing in real estate.
With mortgage notes you own the debt, not the home. So you aren’t on the hook for cleaning carpets, painting walls, or fixing the leaky shower. There are no unexpected expenses that can eat into your monthly cash flow.
That makes mortgage notes an attractive investment in a deflationary world – where we don’t have to worry about the purchasing power of the dollar falling dramatically.
Plus, notes offer higher cash returns compared to rental real estate in the current climate given how much interest rates have risen. They are a great vehicle for creating passive monthly income today.
And we’re just scratching the surface here…
What if we used mortgage notes to create consistent monthly cash flow… and then we used that monthly cash flow to fund other investments – including investments with contractually guaranteed rates of return?
What we’re talking about here is creating our own magic money machine… which is exactly what the world’s best business has been doing for centuries.
There are quite a few pieces to this puzzle. But once you understand them – and how they fit together – creating a turn-key investment system like this is fully within anyone’s grasp.
This is a strategy that I don’t see much information on out there. But to my way of thinking, it’s the pinnacle of a comprehensive investment approach. And it’s applicable to investors across all walks of life.
I’ve spent a lot of time over the past six months working to optimize this idea of a turn-key investment system… and I’d like to share what I’ve uncovered with you this week.
Let’s kick off the new year with an investment webinar on Wednesday (January 8th) – open to all, free of charge.
We’re calling this webinar Secrets of the Turn-Key Investment System. It’s scheduled for 3:00 pm Eastern on January 8th – this Wednesday.
The core presentation will run for an hour or so, and then we’ll open it up to Q&A. And I’m an open book. We can discuss anything you would like.
When you’re ready, you can register for the event at https://phoenicianleague.com/secrets
See you there!
-Joe Withrow