The Positive Community Impact of Note Investing for Fun and Profit
Tanya Brown is sensitive about investors wanting to get into real estate notes for the wrong reasons. Often they are “fix-and-flip” investors, coming to her for her expertise because they see real estate notes as a great way to get the properties cheap through foreclosure.
This rubs the founder of Pure Harbor Groups the wrong way. “You can’t go into note investing with the sole purpose of wanting the property back,” Brown told Michael Duncan of The Road to Financial Freedom Podcast. “You have to go in there wanting to help the people if you can.”
Brown first dabbled in real estate as a landlord, but made the rookie mistake of renting her property to her family members. Wholesaling and fix-and-flips seemed like too much work. She explored tax lien certificates before discovering note investing — the opportunity to “be the bank” in a real estate transaction instead of the buyer or the seller.
“I was like, ‘No way! Individual people can own other people’s mortgages and get the payments from ’em?’” Brown said. “I was like, ‘This doesn’t really make sense! It’s not real!’ Because it’s never been told. Nobody talks about it.”
From Big Banks to Community Ties
Once she invested in her first notes, however, she was hooked. Forget wanting the property back — she didn’t want the property back! First of all, foreclosure is an expensive and time-consuming process.
But more to the point, it was more rewarding to keep the note. Whereas wholesalers and fix-and-flip investors specialize in getting people out of their homes, as a note investor Brown got to keep people in their homes.
For Brown, every note is a story — a person. Maybe they made their payments like clockwork for ten years, but they became injured and fell behind. The bank is tired of trying to collect and is willing to sell the distressed note to a private investor.
The investor then assumes the position of the lender on the property, with the right to collect mortgage payments – or foreclose and take the property if the borrower defaults.
Brown sees this as an opportunity — to relocate housing debt from the hands of an impersonal financial conglomerate to a real person in the community, who can work together with the struggling borrower to keep their house.
“The more that you have individuals in communities buying up these notes and helping people become homeowners,” she said, “it takes ownership away from the big banks and brings it locally into communities.”
At any given time, Tanya has 25-30 notes in her personal portfolio. Additionally, through Pure Harbor Groups she sources notes for other peoples’ portfolio and educates them on note investing — both how to find their own notes, and how to navigate the complex regulatory landscape that allows them to own the notes legally.
Perfect For Retirement Funds
Brown is passionate about helping W2 employees place their retirement funds — self-directed IRA and solo 401(k) — into real estate notes. They’re really perfect for IRAs because they are passive investments with little risk of triggering UBIT.
Most of them are surprised to hear that this is even an option. “A lot of people don’t know about it,” Brown said.
“The most people know about note investing is maybe they have a rental property that they’re ready to sell off,” she said, “and they may sell it off and carry back the note in that case.
The former landlord now owns the notes, so they are the note holder and that is considered note investing.”
“So they own the note, but that’s mainly what people think of. They don’t think about it in terms of buying ’em from the bank.”
Brown likes to point out that many peoples’ retirement funds are actually already invested in real estate notes, since they sit in the portfolios of many popular pension and mutual funds.
“They’re more than likely holding mortgages because the banks will sell them off,” she said.
“They bundle ’em, they sell ’em off, and these hedge funds buy them. And then from your 401k, they invest in these hedge funds.”
Investor/Beekeeper
For investors who want to sieze the opportunity directly, Brown couldn’t be a better advertisement. Semi-retired, she works about four hours a day, travels, volunteers, and has even taken up beekeeping … because why not?
“Financial freedom is the ability to do what I want, when I want, how I want,” she said, “and allowing it to benefit other people.”
