notes vs. note funds

[Stephen Heebner]

Was hoping to collect some wisdom from the BP community if I can explain myself clearly. Wondering if there is really any benefit to owning individual mortgage notes vs. investing in a mortgage note fund. From my simple calculations, taking into account paying for attorneys, business structure/expenses, etc. not to mention the time of due diligence, and understanding legalities, it seems more lucrative (AND SAFE) to invest in a fund. I ran some numbers (ball parking of course) and I actually make more lucrative cash flow through a fund returning 8% than a note amortized at 11-12%. The fund, not being amortized returns more in the years following plus also having preserved my original capital. I understand this is all based solely on a cash flow perspective. Does it make more sense for someone like me with a w-2 job that I enjoy to just invest in funds? I am looking for cash flow. I understand this is not a one size fits all subject... just seeing if anyone has any wisdom for me, OR, is in the same boat as I am. Thanks!!!

[Chris Seveney]

Quote from @Lauren Sanford:

@Stephen Heebner This all depends on your goals.  Our Company has been buying notes for well over a decade.  If you want to take the time to learn the investment, deal with the hassle of the day to today, and keeping up with the regulations then go for it.  However its often easier to entrust those who do this as a business to buy the assets and provide you with a solid return.  We do a live show + Podcast and you will see that a lot of this business is legal versus just owning a piece of property. 

 I agree with Lauren. This boils down to several considerations:

1. What is your end goal? If you want to make a business out of it, then gettnig involved and buying your own notes is not a bad thing. For example, I know someone who was in late 50's and wanted to learn notes so when they retired they had something to do.

2. How much $ you want to invest? If you are starting with under $100k, then you are probably better off investing in a fund, but revert to #1. 

3. Trust. Can you trust the sponsor? Are you ok with giving someone money and losing some of the control? Some people are not ok with this.

To get started in notes, there is a learning curve and upfront costs. The "you can start with no money" thing is a fallacy. You need software to do due diligence (websites/skiptrace etc). Also many for their first few loans will do their due diligence and end up not buying. At $500/pop that can get expensive.

I have done videos in the past showing that investing in a fund collecting interest only and leaving your principal in the fund pays significantly more over time - but with a note you could get a payoff (which if bought for discount is great). Have a calculator that shows this as well.

What is boils down to 99% of the time is #3 and that persons ego / fear of giving someone else $.