I am often asked a question that deserves a thorough explanation, "What is the difference between investing in a real estate note and investing in a real estate rental".  It is quite easy to get lost in the minutia when you're trying to determine where to best invest some of your hard earned money. If you are like most people who is now convinced that real estate can offer a promising return, then this blog content was prepared with you in mind.

There is an enormous difference between investing in a real estate nonperforming note and investing in a real estate rental. The 3T's of land lording as it was phrased by another author are: Tenants, Toilets and Trash. Investing in a real estate note means you will never have to worry of these 3T's. Investing in real estate rental means you will become quite familiar with all three of them. I am not suggesting all tenants are bad, rather suggesting all you need is one bad tenant to convince you otherwise. 

How many times have you heard of a tenant calling the bank because the roof was leaking? How many times have you heard of a tenant calling the bank because the toilet was backed up? Banks have amassed enormous wealth over the many years in real estate finance because they have managed to control the asset and income stream of the asset without ever dealing with any headaches of ownership. Knowing that it has worked for them for so many years, why would you want to try to reinvent the wheel?  The answer to both of my questions are very easy, "never". The bank never gets called by a homeowner much less by tenant on maintenance issues involving the real estate. 

The bank manages their investment portfolio from an email and a report. The email is from the nonperfmorning note servicing company that notifies a bank that the homeowner's payment has been deposited. The report shows that the property taxes and the homeowners insurance coverage have both been paid current. In some cases the non performing note servicing company handles all three, and they are listed in the email and no additional report is necessary. 

Too many of you, this sounds too good to be true. Many people still have the idea that if you want to build true wealth in real estate, your name has to be listed as the owner of the property. I suggest a different approach, you could build true wealth in real estate having your name or that of your company recorded as a lien against the property, in other words you "become the bank". The bank gets paid every month regardless of maintenance issues on the house. The same cannot be said for tenants who feel they can withhold their rent payment until a repair is made. 

Have you ever invested in a real estate nonperforming note? If so, I would like to hear from you on why it was a great deal or possibly not a good deal? Have you ever invested in real estate rental? If so, I also would like to hear from you on why it was a great deal or possibly not a good deal. I have been in the nonperforming note industry for 25 years and have also personally managed a real estate rental portfolio in excess of 55 tenants at one time. I have received calls from tenants on a Friday night of a backed up toilet right when I was getting ready to have dinner. It was one of those calls and the tenant from hell who I faced in court on unlawful detainer action that finally got me to say, ENOUGH! I have since sold all my rentals, and don't ever have to worry any longer about any of those Friday night calls or Tenants from hell.