Investing in real estate vs. note investing

[Joshua Sanchez]

Hello I am fairly new to this site and I tried to find a post on this but was not able to. My question is which is better in the longer term, buying real estate to buy and hold and cash flow or to invest in mortgage note? My goal is to have as much cash flow as I can to be able to build lots of wealth. I do not like wheeling and dealing like flipping. I much rather do my homework and find good properties that rent out good and enjoy the income.

But I have read about note buying and they make it sound like its way better than being a landlord but I just do not see what the difference is since either way you still have to make sure you pick the right property. Also (and not sure if this is possible with note investing) but in buying real estate I can leverage myself and only need 20% in most cases.

I would appreciate you guys feedback. Thank you in advance.

Josh

[David Beard]

Joshua, it sounds like you don't want to commit a whole lot of time, and want it to be fairly passive after the initial purchase. Marc makes a great case for the passive ongoing income that performing notes offer. The capital commitment can be high. Here are some other options to consider:

* Place your funds with a hard money lending company - 8-11%
* Make direct loans to rehabbers - 12-18%
* Invest in a joint venture or syndicate with experienced investors - equity like investment with no guaranteed rate of return - target 15% and up
* Purchase high-quality rentals needing only cosmetic rehab (or even turnkey that are already rehabbed); these are probably homes you'll be all in for $110k and rent for $1,250 in good school districts; without leverage 7-9%; with leverage (15-20% + tax benefits)
* Rental property hybrid options that are intended to greatly reduce your ongoing time commitment, increase term of tenancy, and shift maintenance expenses to the tenant (lease with option to buy, sell with land contract/contract for deed) - 15% - 30%

And of course, in the note realm, since you enjoy homework, you can purchase non-performing notes that will require workout but can potentially provide very high returns of 20%+. Fairly steep learning curve, much less passive, and not the place to start.