Are Private Notes and Mortgage Funds the Future of Passive Real Estate Investing?

Are you looking to diversify your portfolio? How about earning higher returns than the stock market? If so, investing in private notes and mortgage funds might be the solution you’re looking for.

Private notes and mortgage fund investments give you access to higher returns on investment without having to get your boots dirty with complex renovations or countless tenant phone calls.

In this article, we’ll expand on these benefits, showcasing why this investment avenue makes sense for those who want to enjoy passive, steady returns in the realm of real estate.

Higher Returns on Investment

The first benefit of investing in private notes and mortgage funds is access to higher returns. Private lenders take on more risk when it comes to real estate loans. As a result, it is common for returns greater than  traditional stock market capital allocations.

These investment returns can also be heightened when using tax-deferred money, such as funds from an IRA account. The interest earned on the loan isn’t taxable until the money is withdrawn from the account, helping you compound your gains and grow your portfolio.

Steady Returns

Being a landlord comes with fluctuating cash flow. What happens if a tenant moves out at the last minute? How about if a costly repair pops up? This isn’t the case when you invest in real estate through private notes and mortgage funds. Borrowers repay the note on a pre-determined schedule, giving you stable cash flow.

Of course, there’s always a chance that a borrower will default on their repayment schedule. However, there are safeguards in place to help you recoup your investment, which we’ll discuss in the next section.

Secured by Real Estate

Private notes are collateralized by the real estate being purchased. Asset-backed investing provides a safety net if the borrower defaults on their payments unlike investments in the stock market.

For example, if a stock unexpectedly becomes obsolete, you are out the money. On the contrary, real estate is a tangible asset. If a borrower defaults, you can claim the property and recoup your investment. Having these guardrails in place makes private lending appealing.

Greater Control

When you become a private note investor, you set the terms, including the downpayment amount, interest rate, collateral, and repayment schedule. Control over how your money is invested is something most investors strive for.

Do you want to invest in large multi-family properties? How about fix-and-flip projects? With private notes, you have the ability to choose how your money is deployed, the return you expect, and your ideal repayment period.

Passive Income

Private notes take a hands-off approach to real estate investing, creating passive income. Flipping houses and maintaining properties with tenants is time-consuming and can have unstable cash flow. This isn’t ideal for investors who want passive income.

Investing in private notes and mortgage funds eliminates the time associated with traditional real estate investment strategies. In many cases, investors can take a complete hands-off approach, giving funds to a broker for management, like MPI Capital Group, Inc.

For example, let’s say that you don’t want to take the lead on a project. No problem! There are dozens of investors and brokers that pool money together to purchase larger deals and secure higher returns. All you need to do is determine how much you want to invest and your expected return.

Expanded Liquidity

Private notes aren’t meant to be a long-term financing solution, with terms usually less than 12 months. This means your investment isn’t tied up for years at a time. Note investors generally recoup their investments and interest within a year.

Additionally, notes can be bought and sold quicker than physical real estate. If you need to exit a deal, you don’t have to wait months to close. In fact, we can usually find a buyer in a week or two. The added flexibility and liquidity of private notes make them the perfect investment avenue if you like doing multiple deals a year.  

Getting Started

These are just a few of the advantages of investing in private notes and mortgage funds. Other benefits include limited liability, privacy, portfolio diversification, and funding flexibility. To talk over the specific benefits of your investment and how to get started, reach out to MPI Capital Group, Inc. today. Whether you’re an experienced note investor or just learning about the concept, our team is here to help.