What to do with $100K buying notes and\or securities

Question

I have 100K to invest at the moment and I would like some feedback specifically from "note and real estate" investors and not just "real estate" investors.  I was very keen to purchase rental buy and hold property but after doing considerable research have reached the conclusion that the RE market is deep into the seller cycle nationwide and I am not sure now is the time to get in.  I am well aware that there are still cash flowing opportunities out there and I could probably survive relatively unscathed if I buy now in a good cash flowing property even if the market goes south within 1 to 2 years (which IMHO I think it will).  The other issue that is swaying me away from real estate property at this time is that its much more time consuming to find deals right now and time is my most precious asset so I need something passive.

I was of thinking of investing my 100K as follows:

• 20K in gold
• 20K in an index fund pegged to the Dow Jones (I know, quite the day to talk about buying stocks!)
• 10K in an index fund pegged to the NASDAQ
• 50K in a individual note or note fund

These are rough numbers but that is the general thinking I have.  I am well aware that the stock market can go south (I have already experienced that first hand) but I am in a good financial position and can wait out a correction.  I would love to get honest feedback on the investment plan above.

Wayne Snell · Answer

Hi Kelly, I am a notes investor (based in Dallas too) so I am slightly biased here, but I like buying non-performing notes (for the higher returns, but they are more risky and have longer time horizons) coupled with performing notes for cash flow. If I were in your shoes I would consider a few performing notes where the yields are in the 10% range. You can reduce risk by buying them with longer seasoning (how long they have been paying successfully), higher down payments/equity, stronger credit scores, etc. The weaker any of those factors, the higher the perceived risk of default. But there are a lot of really good seller-financed notes out there, and some re-performing notes as well.

If you want to understand ho you might do that, you can watch my video (I do not sell anything). I just have shared some of the concepts I have learned over the years. PM me for the link if interested.

If you want to understand ho you might do that, you can watch my video (I do not sell anything). I just have shared some of the concepts I have learned over the years. PM me for the link if interested.

Keith Thompson · Answer

@Kelly Maddox - @Roman M.  and others... I get the index funds and the RE/Notes piece, but why Gold?

I'll take advantage of the original question to explore a piece that has mystified me for years - Why Gold?  Even for the SHTF scenario that @Ian Ippolito eludes to, I think that booze and bullets would be a better hedge than Gold - and at least the prior has interim, medicinal utility while we're waiting...

I hear the hype, I know folks that invest in Gold - I even own some, but perhaps I'm TOO practical - I just don't get Gold.

Once you have it, how do you get rid of it? Is there a market for that other than one and two off through CraigsList or ebay? I look for my exit strategy before getting into an investment.  Stocks & Bonds, got it, there's a proven, established and stable market. RE - clear as a bell. Notes, a bit less clear to me, but I know there are avenues available. Tax Liens - got that down cold and I'm a huge believer.  I'd replace Tax Liens for the Gold piece.

Gold is a black box - what am I missing? I've got some that I panned many years ago and some coins/bullion, but am clueless about liquidating it at anything near market value. Storefronts for buying Gold/Jewlery offer less than 50% of market rate.

Perhaps it's a Physical vs Paper ownership where I'm disconnecting. Perhaps you're referring to it much like stocks and bonds?

Tracy Z. Rewey · Answer

That Royal PITA is the essence of why so many landlords have moved to note investing! The security and cash flow of real estate without the headaches of tenants.  Of course some note payers provide equal headaches but if you target performing notes with strong equity and solid servicing those can be minimized.  You also have to keep your money reinvested as the notes payoff.

Come to the dark side Luke Kelly :)

Micah A. · Answer

When I listened to BP Podcast Episode 28, I learned that @Dave Van Horn owns a  business called PPR Note Co and they offer an investment product called a “Note Fund” which is a hand picked pool of notes that accredited investors can participate in. That in my opinion is as passive as it gets for note investing.

Roman M. · Answer

Tax liens are short term and high yield if you know what you doing. for newbies they are not appealing for sure.

Odie Ayaga · Answer

@Roman M. I don't think I'd call tax liens necessarily short-term and high yield depending on the state. There's some states where the yields are bid so far down that there's no immediate yield at all in the interest of securing future payments/interest in the property down the road. The upside of tax liens to me are that they're fairly secure in that you can expect that in most cases you'll at a minimum get your original investment and the property back it could take years depending on the state, but the trade-off is that they can be very illiquid compared to other investments in the real estate arena.

Disclosure: I'm not a tax lien expert so any out there feel free to correct me

Ian Ippolito · Answer

@Kelly Maddox, I think it's very smart to be worrying about what will happen if we hit it down cycle.

Here's my feedback on your plan:

1) $50K in an individual note would put that part of your portfolio at high individual investment risk, because it's not diversified. It is possible to get into several funds at $50K, which would give you instant diversification. I look for a very low uncured default rate, which shows that the underwriting is tight and has the best chance of holding up in a downturn. I personally like low LTV so that it has a high chance of returning principal in a foreclosure (65% maximum ). Above that is too risky for me to be interested in. I'm invested in a couple of funds myself which I like (Broadmark and Arixa), and also have accumulated a list of 13 more including a spreadsheet of key statistics to allow comparing them at a glance. If you want this information, just PM me and I'll send it to you.

2) Gold companies use a lot of convincing arguments to sell their products. However, I recommend that you actually take a look at the long-term performance of gold. You'll find that it's awful, actually one of the worst of all traditional investments. It can be useful as a hedge if you think the world is about to end. But since so far the world has kept on ticking, gold has continued to perform poorly over and over again.

Tim S. · Answer

Hard money loans are pretty easy, if you don't manage them yourself.  You are the investor, you invest your funds with a hard money lender who does all the work, you collect the proceeds. It's pretty easy to find people who will give you 10%, they charge the borrower 13% for example, and make their money on the arbitrage, plus loan origination fees.

I also invest in PPR's note fund, it's probably a little safer since it a fund, many assets are your collateral, vs. hard money where your money usually goes into just one deal.

Michael Jone · Answer

Cash is the King right now. Do not buy Gold when the market is crashing down. US$ is considered a safe haven currency and tend to move up in economic/market turmoil which makes GOLD against US$, not a good bet.

The best way right now is to hold cash and wait for a good deal in notes and or the stock market. It is very common for the market to correct 10-15%. Invest in the market if it falls below 10%. Only invest less than 25% of your cash. If it falls below 30%, invest another 20-25%.

The economy of the US and the world are in good health. There isn't much reason for the market to go down except the market needs a correction or a breather. The market looks like it chose to take a correction instead of a little breather.

I have been waiting for this opportunity for a while.....

Of course, I will always look out for a good note deals.

Kelly M. · Answer

I am open to HML but I am sure there is a higher learning curve to learning how to doing HML safely than buying performing notes.  Safeguard Capital Partners has what appear to be fairly safe performing notes with a return of 9% so that is the direction I am leaning towards going in regarding buying notes.  Feedback or experience on Safeguard notes would be welcomed.

What to do with $100K buying notes and\or securities

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