Out of State Investing: Properties vs. Notes

Ever think about investing out of state? For many, it is a scary endeavor, and perhaps rightly so. Think about it: you are buying a property (probably the most significant investment other than your primary residence) in a different state, where it will be rented to an unknown tenant and managed by a property management company whom you are trusting will screen the tenant, collect the rents, make repairs, and ultimately deliver monthly income to you in the form of a check or monthly AFT. Lots of variables can make or break those “consistent monthly checks.” Now, suppose you are like most real estate investors. In that case, you only think of investing in the actual properties themselves when investing in real estate without giving a thought to another investment option...real estate mortgages or notes.

As mentioned, investing in out-of-state investment properties themselves can be complicated. And true, there are lots of upside to investing in properties, from the monthly income they generate to the possible tax advantages, to tenants paying down your mortgage, to appreciation, etc... and don’t get me wrong, our clients who have invested with us both in CO and out of state since 2008 have generally been thrilled with their investments, both in terms of income generated as well as the extreme appreciation they have seen, but again, its work. You need to follow up with the property managers, maintain the properties, pay taxes and insurance, etc...

But what if you would like a more hands-off, “set it and forget it” real estate investing option? You may want to consider investing in “Notes.” By “Notes,” I do not mean buying non-performing notes for pennies on the dollar as so many gurus peddle. I don’t mean buying second mortgages either. Both are very risky, and I am all about low-risk high return, so those don’t work for me. I am talking about investing in Performing, 1st mortgage notes, secured with real estate at 60-65% LTV where the borrowers are typical “A” credit quality borrowers or entities with significant savings and who have put 35-40% down in cash to purchase the investment property securing the Note. Sound too good to be true? Think again. These notes exist and pay around 8%, which is a phenomenal return compared to the meager returns that money market accounts and CDs offer you these days. These borrowers pay on time, and they either send you a check or do an AFT directly into your bank account. It is genuinely “mailbox money.”

As I mentioned last month, you need to think outside the box if you hope to generate above-average returns with minimal risks. Purchasing performing 1st Mortgage Notes can be a great way to generate those returns as part of a diversified investment portfolio. To learn more about out-of-state real estate investing with properties or Notes, check us out at Invest1Properties.com.