Note Investing Strategies To Set You Up For Success With Fred Moskowitz

January 26, 2022




GDNI 188 | Note Investing

There’s no right or wrong answer in note investing. You have to figure out your way through it. What fits your lifestyle? There are times that you can’t seem to know what to do next but believe that a little light will help you make decisions for financial freedom. This was the spark of hope coming from Fred Moskowitz. He discusses different real estate investing strategies that were huge for him and contributed to his success. He also shares what drove him to pursue this career and the opportunities along the way. So tune in and work your way through entrepreneurship in the real estate industry!

Listen to the podcast here:

Note Investing Strategies To Set You Up For Success With Fred Moskowitz

Welcome to another episode of the show. How are you doing, Chris?

I’m doing good.

In this episode, we have a special guest, Fred Moskowitz, who has been a note investor for quite some time now. We’ll get into his backstory. Fred, how are you doing?

I’m doing fantastic. Thank you for having me on the show. I’m excited to talk to you guys. It’s going to be wonderful for the three of us to have a conversation talking about note investing.

Fred, I know Chris and I are familiar with your story and who you are, but there may be a couple of people who are not familiar with you. If you don’t mind diving into your background and giving us your backstory, that would be great.

I’m happy to do that. I had a very long and successful career working in the technology sector. I was a computer engineer. I loved it. I love the industry. I spent a lot of time working at technology startup companies. After having seen my industry turned upside down from the bursting of the dot-com bubble, the 9/11 attacks and all the turmoil, it made me realize that I was taking such a huge risk in my life because I was so dependent on the income for my job.

It was a job that had so many wonderful things, but it also had many circumstances outside of my control. What I learned was that no matter how talented of an engineer I was or how valuable of an employee I was, if things are not going well financially at the company or in the industry overall, I could quickly lose my job for no fault of my own. Having been through that, I eventually came to the realization that I needed to seek out other sources of income so that I wouldn’t be dependent on the paycheck from my job.

GDNI 188 | Note Investing

Note Investing: If things are not going well financially at the company you’re working for or in the industry overall, you could quickly lose your job for no fault of your own. You need to seek out other sources of income.

From that, I turned to different investing strategies. Real estate investing has been huge for me. After a few years, I was sitting in a weekend seminar being taught by Jimmy Napier of all people. I consider him the granddaddy of note investing. It was a workshop on negotiation. It was for real estate investors. The whole venue was full of real estate investors. He was teaching all these different negotiation techniques.

One of the little side remarks that he made was that when you’re starting out in life and you don’t have a lot of capital, real estate is a great way to build up capital and make a large amount of capital if you’re in it for the long-term. After you make some profits, if you’re able to take that and then redeploy it into debt, you can boost your rate of return. It caught my attention. It was just this little side remark he made. I ended up buying his book, Invest In Debt. I got super interested in note investing, and it wasn’t until a number of years later that I had the right relationships where I could get involved and purchase my first few assets. That’s how I got involved in note investing. It has been a wonderful journey for me.

One of the things I love about investing in real estate, notes, and alternative investments is that there’s not just one way to do it. There are so many different ways to approach this. Maybe you didn’t quit your job immediately but you started learning about different investment strategies and different asset classes. It sounds like you took some time before you left your job. Maybe we can go into that a little bit, but there’s more than one way to skin this cat. Chris, do you have anything?

I was going to hit upon what you said that there are so many ways to grow and get your business. One question I was going to ask Fred is, how long did it take you to get to a point? Unfortunately, you see in this space now with some of the people providing some of this training is they make it sound like this is a 3, 6 or 12 months, get your business up and running. You can quit your job and live the life of luxury. We always like to keep things real and so forth. I’ve been going on this now for five years and it depends on your situation. If you live in a state that is very affordable and have a low cost of living and you need to make $30,000 a year in notes, you can get to that faster than if you live in New York City which $30,000 isn’t going to get you a parking space. How long did it take you to work through everything and get your business to a point where you could focus on where you got it to where you wanted to get it to.

I’m still on that journey, to get it to where I want to get it to. To answer your question, I did both. I was working in my engineering job and doing investing. It was fifteen years where I was doing both. I love being an engineer. I loved what I was doing, but I also like generating income from my investments, so I had both. I discovered some different interesting things. When you own real estate and you own rental property long-term, you have those tax benefits that are being thrown off from the real estate, and then you turn around and you’re at your W-2 job. Each year, you’re getting dropped into a lower tax bracket. I was seeing this happen. I was like, “This is such a super-powerful combination.”

I did that for quite a long time. The beauty of investing is there’s no specific way that you have to do it. The right way to do it is the way that fits into your lifestyle and what your goals and objectives are. There’s no right or wrong answer, but it is not realistic to think that you’re just going to jump into real estate or note investing, and then all of a sudden have all this income coming in. It’s a long road. I always encourage everyone to go into it with a long-term mindset or perspective because that is what’s going to set you up for success. The road is bumpy. There are peaks and valleys along the way. Having the persistence and perseverance to make it through is what’s going to set you up for success.

It sucks when you have that blizzard coming down on that road when you’re going down the mountain and the brakes don’t work. You’ll have those adventures as well as part of this business. That’s what’s great about this business too. It’s not monotonous in any way, shape or form. Every note or investment clearly has its own story. If I had a fictional writer write stories, they couldn’t write them as good as some of these notes that I’ve been through. I’m sure you’ve been in the business in real estate long enough that you’ve had some of these as well.

You’re taking a huge risk in your life when you’re dependent on the income from your job. Click To Tweet

There are so many interesting situations that come up or a deal that you get involved with which goes south. Maybe you set it off to the side for a while and then come back to it later and circumstances change and things are very different. You then have an opportunity to turn it around. Other times, you get involved whether it’s a note deal or a real estate deal where there are huge problems, but you have the skills, abilities and knowledge to solve those problems.

Let’s face it. We live in America. My philosophy is that with enough time and money, you can fix any problem. You just have to have the foresight to see through that blizzard that’s coming at you as you’re going up the hill. Have a plan or strategy and the right people around you supporting you. That’s what’s going to set you up for success.

I was going to quickly say. One of the analogies that Brandon Turner on BiggerPockets Podcast uses is that a lot of times, investing is like driving in a fog. You don’t necessarily need to see the entire path. You didn’t know where you’d be now several years ago, but then there are times where it opens up and you’re like, “I can see for the next six months how this is going to go.” Are you going to add on something, Chris?

I was going to ask Fred to share one of his crazy stories.

I love what you said about the fog analogy because sometimes, all you need is a little bit of light so that all you can see is the step in front of you or the next step you’re going to take. You can’t see ten steps ahead, but you only need to see one and that’s it. You take one step and that’s all you need.

Do you have any crazy stories for us? This is putting you on the spot here. We do try to pull out maybe a good deed that you’ve been able to do in your note investing or real estate investing career. Maybe you can think of a tough situation that you were able to turn around either for yourself or someone else.

I was speaking with one of our investors. He came to me and he was perplexed. Here’s this guy that was a super successful business owner. He’s crushing it in his business. He has been an entrepreneur and has a young family. He never had a traditional job, so because of that circumstance, he never had any retirement plan or retirement accounts set up. He came to me and said, “Fred, can you help me? I don’t even know where to start.” We talked and went over some different strategies and ideas. I helped him have a vision and put together what he wanted to do and what possibilities there are.

Note Investing: The beauty of investing is that there’s no specific way you have to do it. The right way to do it is the way that fits into your lifestyle and what your goals and objectives are.

He knew he wanted to get involved in real estate and in notes, but he was so focused on his business that he doesn’t have time to be hands-on at all. For him, passive investment options were the best way to go. We talked about that and explored different opportunities and possibilities for him. In the end, he set up some self-directed Roth accounts, which is are my favorite vehicle, and started getting involved and buying some assets.

I talked a lot about the power of investing in assets that you own that generate income for you while you own them. After a year, he was really happy with the idea that now he has something for his retirement and for his family because he has young children. It was a situation where someone was there with so much overwhelm that he didn’t know where to start. They couldn’t see that next step to take because the fog was all around. Sometimes, all you need is a little bit of light to help you get started and figure out where to take that next step.

We’re so in this world of note investing and self-directed IRAs that we assume everybody knows about this.

That’s so true, Jamie. I’m sure you and Chris come across this all the time. You talk to people and investors where all they know about investing is the 401(k) plan they have at work, and the half dozen or so options to choose from and that’s it. That’s all they know about. Maybe they heard about crypto, Bitcoin and some other things, but they don’t know where to get started with that. It’s all about spreading ideas. I love what you guys are doing with your show because it reaches such a diverse audience. For anyone that’s looking to learn about note investing or investing in hard assets, podcasts are a wonderful medium to do that from. It’s so powerful.

I want to jump back. It’s interesting because you mentioned you were working during the dot-com boom. I’m guessing the three of us are all pretty much around the same age because I went to an engineering school that had a lot of engineers who were the same thing. In the whole dot-com era, they were working for these companies. They would have stock options that would blow up to a huge amount of money coming out of college, and then they ended up with nothing.

What I would consider successful were the people I went to school with. They and their spouses make six figures and they live comfortably. From an investment standpoint, we come from a time where we were raised as, “You run your 9 to 5. Go to work. Get a good job. Get a good education.” It was the 40/40/40 rule, 40 hours a week for 40 years to get 40% of your income at the end of the day. Now it has shifted. It was years ago when I realized that single 401(k) and stuff are not going to cut it.

I have a lot of friends and buddies from college that I talked to. They are finally starting to realize as they get into their mid to late 40s like, “I don’t want to do this. I need to find something else.” They hear what I’m doing with other investors in real estate or other ventures. It’s amazing how quickly it sets their light bulb off. They didn’t even know about all this stuff existing. It’s fascinating how the media and everything push Wall Street, 401(k), put your money in, take the six Vanguard options that you have and that’s it. This whole other realm of self-directed IRAs, Roth and solo 401(k)s blew my mind when I found out about it.

Go into a venture with a long-term mindset. The road is bumpy but having the perseverance to make it through is what's going to set you up for success. Click To Tweet

That’s so true and it’s so important. Having a 401(k), if that’s available to you at your employer, is great. Participate in that. Get the matching. Take advantage of that. However, don’t let that be the only thing you do. Let that be a piece of your overall plan but have some other strategies. I feel very strongly that everyone should own investment real estate in some form whether you’re actively managing it or operating it. If that’s what you like or maybe that’s not for you, there are passive investment options that you can do that someone else is managing and operating. Participate in it because our government incentivizes two things through the tax code.

If you look at the tax code, the IRS incentivizes two activities for all Americans, which are owning rental real estate and being a small business owner. If you do either of those two things, there’s a ton of tax benefits that are extended to you. Find out how to take advantage of that and do it in a way that fits into your life, whether you want to be a passive investor or an active investor, and that goes for real estate or notes.

If you love the asset class of notes, which I certainly do, you can get involved in it. You can own notes. You can be active in the business. Maybe, you don’t have time to be active in the business. Maybe you invest in a note fund where there is professional management and operation of that investment for you, but you still benefit from it. You have exposure to the asset class and you increase the consistency of the income and returns into your investment portfolio. That’s so powerful.

I love the pragmatic approach you take as far as meeting the individual where they are and assessing their situation as opposed to, “Here’s the one size fits all answer for everyone.” For some reason, things get so controversial. It’s a whole rabbit hole as far as, “You shouldn’t invest in stocks, you shouldn’t do your 401(k), real estate is risky.” You can’t make these blanket statements without understanding the person’s situation, their goals and how much knowledge they have. I love the fact that you’re encouraging people to take ownership, get educated and be open to other possibilities that might meet their personal situation and their goals. We haven’t touched on what your business looks like right now. How is your business set up? What are you working on these days?

I’m always working on interesting things. I manage a note fund and that’s my main focus. We’re out there buying notes on the secondary market on an ongoing basis. I love writing. I’m always writing. It’s a wonderful thing. I put out a newsletter to people interested in investing. It’s such a wonderful way to interact with people where I’m writing. People are responding and commenting. I also love doing a lot of speaking, podcast interviews, speaking at events and conferences. Get around like-minded individuals, have some conversations, exchange some ideas and concepts because everyone’s doing different things and there’s no right or wrong answer. The only right answer is what fits into your lifestyle that you can pursue. You end up getting exposed to different concepts and trends in the industry.

The note industry is so diverse. There are so many niches within the note industry and it’s wonderful to learn about them. Sometimes, I’ll attend events and meet people that are involved in investing in things like medical debt or different unsecured debt, which is not something I get involved in. It’s fascinating to hear about different business models and learn what other people are up to.

There are always different business cycles. For what we do in residential space, there’s definitely a cycle. The price of assets has been going up and more in demand. The important thing is to learn how to adapt and navigate through that. It doesn’t matter whether you’re into real estate. It’s the same thing. Real estate cycles go for about 9 to 12 years on average. If the stock market is your thing and you’re doing trading or stock investing, there are market cycles for that as well. Learning how to be active and participating in all stages in the cycle are what set you up for success when you can be adaptable and flexible.

GDNI 188 | Note Investing

Note Investing: There’s power in investing in assets that you own that generate income for you while you own them.

Those of us that have been in the industry for a while all remember that. There was a time when there were so many tapes and notes that you couldn’t look at them all. Sometimes, it was like, “If I have enough information, I can dig into these assets. If there’s less information on these others, I’ll move on and look at others.” It’s very interesting and so true. What’s so important is the idea of getting to conferences and building relationships with people. The note industry is relationship-based. If you want to be successful in this, one of the skills for you to consistently work on is communication skills and building relationships. You can never be too good at either of those things because that’s what’s going to carry you forward in any situation that you have.

You mentioned you love to write. You did publish a book. I’d like to talk about that. It sounds like your passion is writing. What got you to write a book and the thought process behind it? Tell us a little bit about it.

I released a book. It’s called The Little Green Book of Note Investing. In that book, my objective was to give a nice, high-level, basic overview of note investing to someone that’s learning about it for the first time. Maybe all they ever knew about a note and a mortgage was from the perspective of being a borrower. They bought a house, their primary residence or investment property. That’s where they learned about what’s a note and what’s a mortgage, but not a lot of people know that you can invest in it. You can actually own the asset and be the one receiving that cashflow. That was the premise of the book, to teach about what is note investing, why do banks originate notes and then sell the assets later, and how that all works?

There are also some basic concepts like how to understand different niche areas of note investing, what’s right for you, how to conduct due diligence on assets, and looking at some different case studies to see how that works from end-to-end. Another big focus in the book that I love and my favorite is using self-directed retirement accounts, self-directed IRAs or self-directed HSAs to take that capital, use it in note investing, and put those two aspects together to make a powerful combination.

Here’s the thing. Note investing generates a lot of tax liability. That’s what happens. There are no write-offs or depreciation. If you combine that with the tax advantages of a self-directed Roth IRA or a self-directed HSA and do your note investing with that capital and you don’t have taxes at the same level, it’s super powerful.

I wanted to make sure that I got that message out to people and open people up to those ideas to learn about that. Someone may say, “I had no idea that I could use my retirement account capital and use that to buy notes or real estate.” You can. There are so many strategies and concepts. I love exposing people to those and opening up their eyes to the possibilities.

It’s something that I explain a lot to people because most investors that I work with got two buckets of money. They have retirement funds and they have non-retirement funds. When they asked me about it, I’m honest with them and say, “Use your retirement funds for note investing or in investing. Use your regular money to buy a hard asset or invest in a hard asset because you get the depreciation and the tax benefits. Compared to a note, its interest is ordinary income.” If you took $100,000 and ran it each way, it’s probably a few thousand dollars depending on where the money came from if you made the same amount on each investment.

Sometimes all you need is just a little bit of light to help you get started and figure out where to take that next step. Click To Tweet

How does that compound over 10, 20 or 25 years? It’s a couple of thousand dollars, but when you have that compounding, the impact is massive.

How much work was the book to write? Would you do it again?

I absolutely would. It was a lot of work for sure. When I think about it, it’s like running a marathon. The best way to approach it is to carve out a little bit of time each day for writing. You’re not going to sit down for ten hours and just be cranking out material. It won’t happen that way. It’s difficult to find your rhythm, but the best advice that was given to me was this. I learned this from Seth Godin. He’s a famous digital marketing guru.

I’m reading Tribes.

He talks about writing like this. He says, “Write as if you’re writing for the wastepaper basket.” Every day, you’re going to write something and then toss it out. Approach it from that perspective and over time, you’re doing it every day. It’s a habit. You’ll find, “I wrote all this material. Here’s a piece that’s nice. I’ll take this.”

Don’t pressure yourself feeling like, “I’m going to sit down and create this masterpiece.” It’s not like that. It’s messy and irregular. Over time, things take shape. I found that the best way for me to stay focused was I blocked out on my calendar every day, “Time to write,” and that’s what I did. It took about two years to do the book, but it was such a rewarding experience and something I continue to do to this day.

That’s good because I’ve written a bunch of blog posts. I’ve put that on hold for now. It was a lot of work to write one blog post. For me, it was like, “If I have to go research this topic of CFDs versus regular note and mortgage, I’m going to go do some research on my own anyway, so why not write that out for other people?” I imagine you learned a little bit along the way not only about composing and producing a book but also probably gathered some additional information about notes and note investing. That’s something I could see doing for me in the future, but that’s a big undertaking. Kudos to you.

GDNI 188 | Note Investing

Note Investing: You have to have a strategy and have the right people around you for support.

Jamie, I encourage you. Having a blog and writing a blog is a great way to keep up with it. It’s low pressure. You’re writing smaller pieces or articles, so that’s wonderful. Over time, you can eventually revisit all the blog posts you’ve done and start assembling something larger out of that.

We did an eBook, which was a little too big for an eBook but not quite a full book. From doing that, I can relate to how much work you must have put in. We certainly encourage people to check out your book for sure. To pivot quickly, you mentioned Jimmy Napier. What other people in the industry have you looked up to over the years or who do you follow these days?

There are so many. I don’t know where to start. Here’s one thing I’ll say. I felt so fortunate that when I started investing, I was attending workshops and seminars with people like Jimmy Napier and Jack Miller who’s a legend in real estate investing. Peter Fortunato was another one. He’s amazing. I sat in his seminar for a day and it was overwhelming. I remembered it so well. If you stopped to write something down and it took you more than 30 seconds, he was going to be off 2 or 3 things beyond that and you’re lost. You had to be so on and focused because you would miss stuff. He does workshops on creative real estate. He has a paper and a course. He’s one of the older guys. Check him out.

Another one who’s very inspirational for me is John Schaub. He speaks at Paper Source from time to time as well. Get out there and see some of these guys because you can learn so much. The people that are no longer alive or that are no longer with us, we have YouTube. There are hours and hours of content that you can watch. You can find brilliant minds. Some other people that I’ll mention, Peter Fortunato is a huge one. I love attending note industry conferences because you come in contact with experts at all levels. Some are less experienced. Some are more experienced or working at a huge level. Everyone has different perspectives. You learn so much from hearing them speak and present, from having conversations, networking with people, and learning about what others are doing. That’s so valuable.

What are your favorite conferences?

Will you go to any conferences in 2022?

I’m definitely going to a few. I’m still firming up schedules. It’s a little crazy with live events. It has been. It looks like Distressed Mortgage Expo is moving full ahead, so is Paper Source. Those are always good events and I’m looking forward to that in 2022.

There's a huge ton of tax benefits that are extended to you in real estate. Find out how to take advantage of that and do it in a way that fits into your life. Click To Tweet

It’s good to get back into live events because in the last few years, based on what’s going on in the world, we haven’t been able to experience live events. It will be interesting to see people again.

I think everyone is looking forward to that.

Fred, this has been fantastic. You’ve already dropped a lot of notes and bolts, but is there anything that comes to mind that you want to throw in there for our note investor audience as far as a nugget that they could take away from this episode?

Thank you, Jamie. I want to encourage everyone to be mindful of taking action. If you’re tuning in to this show, you are taking action. You’re making a conscious decision to tune in to the show. I want to congratulate you for doing that, for furthering your education, learning about investing, and growing your knowledge and your skills. A lot of people don’t end up taking action. They talk about doing it. You see this all the time. People want more and they dream about more, but they make excuses.

They blame the president or the economy but they don’t take action. They just sit there in that mindset. They don’t take action but you did. Congratulations on doing that. Keep on doing that. Keep on learning. Keep on growing your skills and developing them. Get out there. Go to conferences and events and build those relationships. I look forward to meeting some of you in person in the future.

How can people reach out to you other than at conferences?

You can visit my website, which is FredMoskowitz.com. If you would like an easier spelling for that, you can go to GiftFromFred.com. Certainly, check out my book. It’s The Little Green Book of Note Investing. It’s available on Amazon. I want to thank you both, Jamie and Chris, for having me on the program. This has been such a wonderful conversation. It has been great sharing and talking about ideas and concepts, which I always love doing. Thank you.

Thank you. Chris, do you want to take us out?

Thank you, everyone, for joining us on this episode of the show. As always, make sure to leave us a review on your favorite listening station. Go out and do some good deeds.

Take care.

Important Links:

About Fred Moskowitz

GDNI 188 | Note InvestingFred Moskowitz is an educator, author, and public speaker who has trained countless investors from all walks of life on how to create passive income streams of their own. As a fund manager, Fred manages a mortgage note investment fund and is considered an industry veteran within the note investing arena. Fred teaches the concept that individual investors are able to step into the shoes of the lender, through note investing, and effectively “be the bank”.
Fred takes pride in collaborating with investors to help them grow and profit in the note space, as well as being a trusted and valued resource in the arena of alternative investments. His new book, titled “The Little Green Book Of Note Investing, has recently launched.
You may connect with Fred at https://www.fredmoskowitz.com/
Download Fred’s special report on note investing at https://www.giftfromfred.com/
Book: “The Little Green Book Of Note Investing” pick up a copy on Amazon here: https://amzn.to/3I0pR49

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