Mortgage notes are secured by real estate often known as a strategy for risk-averse investors. There are several reasons for this.
First of all, as we’ve already discussed, note investing could generate a steady interest income. Plus, there are typically no hidden or unexpected costs.
With direct ownership real estate, it’s hard to expect a stable and predictable income. You’ll need to pay mortgage loans, taxes, insurance and regular maintenance fees before you start making a profit. There could be unexpected and costly repairs like replacing a roof or HVAC. Besides, there’ll be instances when your property’s lying idle with no tenants and generating zero income.
Real estate could also expose you to market volatilities. For instance, during a market downturn, you can lose substantial equity on your property. In that same market, the value of your note investment will remain the same. You’ll only be affected in the event of foreclosure and you decide to sell the note to recover your investment.
There are also other factors like potential high liquidity and multiple exit strategies that may make notes a safer investment.
But, let’s be clear. It doesn’t mean that notes are risk-free. No investment is. But as an investor, you’ll be exposed to fewer risks when owning mortgage notes compared to owning real estate.
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