High-Yield Cash Flow Without the Hassle — Real Estate Note Investing

Most real estate investors are landlords. They collect rents, get tax breaks, and build equity. 

But landlording comes with responsibilities and liabilities.

Good news … cash flow comes in TWO flavors. Rent … and also, loan payments. 

Note investing allows investors like YOU to collect cash flow without all the hassle of landlording. Done right, it brings high yields AND equity. 

We’re talking with a multi-million dollar note investor about how to do note investing successfully. 

In this episode of The Real Estate Guys™ show, hear from:

  • Your high-yield host, Robert Helms
  • His low-interest co-host, Russell Gray
  • Our highly interesting guest and note investing expert, Bob Fraser

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Investing in real estate by investing in debt

It’s the worst kept secret on the airwaves … we LOVE real estate and the returns it provides. 

But you don’t have to invest in property to get the benefits of investing in real estate … you can invest in debt. 

It’s not a strategy that is unknown to seasoned investors … but it is less-used. And, it’s an area of privateer money that can make a lot of sense for investors. 

We are big fans of a concept called “arbitrage.” 

That’s what banks do. You put your money in the bank and … effectively … they owe you money and interest. 

Then, the bank goes out and uses your money to invest and make loans. They take a loan to make a loan. That’s arbitrage at its most basic. 

Doing this as a lone investor … pun intended … can seem difficult or even impossible. So, we went out and found people who know this business and do it really well. 

The fact is … people borrow money to buy real estate. 

If you have all the money and you want to pay cash … you can. But leverage is one of the greatest tools we have as real estate investors. 

In today’s climate, many investors are gravitating toward a fixed income … and are having a hard time finding it. 

Where can you get a yield?

The same principles of property purchasing can apply to mortgages. 

A mortgage was written for a certain amount of money and is paying a certain amount of payment. The seller who owns the note is desperate to get rid of it and is willing to sell it at a discount. 

There is a lot of money to be made on the debt side … and one of the greatest times to do it is when there is a crisis in the debt markets. 

Right now … we’re in a global pandemic. Debt is going bad all over the place. 

There are desperate sellers that need to cash out for a variety of reasons … so that means a huge opportunity for savvy investors. 

The ins and outs of real estate note investment

Bob Fraser from Aspen Funds is one of the leading experts in private lending and real estate notes. 

After riding the ups and downs of the stock market, Bob was ready for something with less volatility and more control. 

“My partner lost everything in the real estate crash as a developer … but the banks did fine,” Bob says. “That’s how I found myself on the ‘death’ side of real estate.”

But how do Bob and his team get to the point where they find a note that is for sale?

“A lot of our notes we buy from other financial institutions. These notes are typically bank originated. For whatever reason … divorce, medical crisis, job loss … people got off track with their loan,” Bob says. 

There are some loans that work perfectly … where the buyer pays every month like clockwork. 

Then there are others where the borrower gets in trouble … sometimes many times … and they have a late fee or other issues that come up.

When this happens, it doesn’t mean it is a bad loan. Sometimes, institutions just have to rehab the borrower.

But after, they may want to sell that loan … even though it is performing again … and they’ll do it at a DISCOUNT.

How does this process work?

Once a loan is modified … say, by a bank … the terms of the loan have been changed. Now, it’s called a troubled debt restructure. It’s a black mark. 

As a bank, you have a different capital requirement … so you want to get rid of these loans. 

If you’re a hedge fund that buys a non-performing debt and then re-performs it … you need to get rid of it for tax reasons. 

Long story short … there are motivated sellers out there. 

“We’re seeing prices for performing paper at anywhere from a 20% discount to 50% discount,” Bob says. 

After the loan is purchased, there are several avenues for action. 

Some buyers figure out how to take over the property and sell it at a profit. Others go in and work with formerly distressed sellers to lower the interest rate in favorable ways. 

This type of lending can be extremely flexible. 

For Bob’s team, the sweet spot is buying up notes with distressed sellers … not distressed properties or borrowers. 

“There’s no such thing as a bad loan, just a bad price,” Bob says. 

Getting started in real estate note investing

What do you do if you want to get involved in real estate note investing? 

You could pursue this strategy actively … hire a mortgage servicing company and board the notes with them.

Or, you could go about things passively with an experienced firm that knows how to manage the process. 

Bob and the team at Aspen Funds have put together a system where individuals are investing in a collection of notes instead of an individual loan. This allows diversity in your personal portfolio and mitigates risks. 

For more on real estate note investing and Aspen Funds … listen to our full episode!


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