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this to succeed, the note must be produc- ing monthly cash flow. Strategies for performing notes: • Collect monthly, passive income for the life of the loan • Sell the performing note at a premium
one of the strategies above or simply sell the note in whole. If the investor chooses to sell the note, it is a good idea to first hold the note for at least 9-12 months to establish a good track record. This is called seasoning a note. Mortgage note exit strategies: • Use seller financing to create notes on rental properties, thereby creating continuing cash flow but removing the daily responsibilities associated with being a landlord • Reduce tax bills by selling properties and holding the notes on them • Sell seasoned notes for premium prices WEALTH-BUILDING AND LEGACY Mortgage notes are the ideal invest- ment vehicle for investors seeking to build wealth and a financial legacy for their heirs. Not only do they offer long-term income, but they are ideally suited for investing within a self-directed individual retirement account (SDIRA), which may be passed on to heirs more easily than other investment vehicles.
In fact, in some ways note investing is even more appropriate for transactions within an SDIRA than other types of real estate since third-party service companies can minimize direct investment involve- ment which is required for these accounts. Another opportunity that many real estate investors do not take advantage of is using a self-directed Coverdell Education Savings Account (CESA) to handle their mortgage note investments. Real estate investors can use these accounts to buy notes or otherwise amass college or other education savings for their children or grandchildren, sometimes for as little as $100. A strong, thorough knowledge of note investing strategy can benefit every real estate investor, whether they wish to use it as a primary strategy or creatively as the need arises. Never write off note investing as a way to generate passive income, exit a difficult property, or pass down a legacy to your heirs. •
LET’S TALK PRIVATE LENDING Members of the American Association of Private Lenders are the trend-setters in private real estate lending. From their voluntary adherence to a Code of Ethics to their knowledge of the private lending process, they are the gold standard for the industry.
• Sell partial shares of the note • Raise capital via hypothecation NOTE INVESTING STRATEGY #3 EXIT PROPERTY OWNERSHIP USING SELLER FINANCING
Notes also can be used as an exit strategy for rehabbers or landlords. Many landlords eventually tire of the day-to-day hassles of ongoing property management. Landlords can sell their rental houses using seller fi- nancing to produce ongoing cash flow with fewer headaches. Expenses such as repairs, utilities and taxes all become the respon- sibility of the borrower, though the wise investor will stay vigilant that these are being paid to maintain their investment. Selling a house via seller financing can also reduce the impact of a large tax bill being due all at once. If the investor needs a lump sum of cash, they can use
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Bill Griesmer is the Managing Member of Stonegate Capital, which buys and sells performing and distressed notes. He may be reached at wjgriesmer@gmail.com.
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54 | think realty magazine :: february 2018
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