What Is Note Investing with Fred Moskowitz

Josh (00:00:02) - All right. This is a new series on the deal, Scott. We we got seven minutes on the clock. I'm here with Fred, and we're going to talk about the deals of note investing. So Fred welcome to the show.

Fred (00:00:12) - Thank you. Josh, it's great to be here.

Josh (00:00:14) - Yeah. All right dive in. What is note investing Josh.

Fred (00:00:18) - Node investing is the whole idea is that you aren't buying and investing in debt in more in mortgage notes specifically. So the mortgage notes they're secured by real estate and your investment is backed by something with tangible value. And that gives you a lot of downside protection. Now, a lot of people are familiar with notes from the perspective of being the borrower. But how about when you are an investor, you're stepping across the aisle and becoming the lender. And so what happens is you go from being the one making the monthly payments to being the one receiving the monthly payments. And so this is an investment that generates cash flow and income for you.

Josh (00:01:07) - Yeah.

Josh (00:01:08) - Cash flow is king. There was a saying cash is king but cash flow truly is king. Now if I want to be a real estate investor, but I hate dealing with tenants and toilets, this may be a good option for me, right? So kind of explain for me, I've never been a node investor. I've been a real estate investor. How would I even start to think about getting involved in investing? I don't know what I'm doing.

Fred (00:01:31) - Yeah. Node investing, the whole idea is where you have capital and you want to put that to work for you. And so you are outplaying your capital in exchange for return on your investment, which is the interest payments coming from the note. And along the way, as I said earlier, your your investment is backed by the real estate. So you have downside protection there. And so every month normally you would be receiving payments uh each month. And the payments consists of interest plus a portion of your principal being returned just like the amortization schedule dictates.

Fred (00:02:14) - Um.

Josh (00:02:15) - So there's a risk of the person not paying, but there's also the risk of someone paying it off early. Right. So how do I how do I avoid someone defaulting on the loan? And then I'm like, I don't there's a piece of property in Wisconsin that I've got to go chase down and figure this out. Like, how do you deal with that?

Fred (00:02:35) - Yeah, that there is, um, you use loan servicing companies that help manage the note. They manage the day to day, uh, activities on the note. And, um, you always when you buy a note, the way to protect yourself is through good due diligence practices that you look at the history on the note, the collateral quality of the collateral, and the borrower's history as well. And so when you take all those elements together, it gives you a good picture. Now, of course, there's no guarantees. However, uh, that's going to be a high likelihood, uh, to show you what's coming in future and a lot.

Fred (00:03:21) - And so when you do that over and over and over with many, uh, notes, many deals, you get a good feel for the underwriting process and how to evaluate them.

Josh (00:03:33) - Yeah. When you're evaluating a deal, where do most people go wrong as they're just starting in node investing? Right. I'm going to make my first investment. And where where do most people go wrong?

Fred (00:03:44) - I would say most people go wrong in the due diligence portion of really not taking into account all of the important factors, or putting too much emphasis on factors which may not be, uh, so important or so relevant. Um, that that's a thing. But the main areas that I always like to teach about and speak about is having a good due diligence process and surrounding yourself with the right team to support you and help you with that, because there's a lot of tools and products, data products that will help you with that analysis.

Josh (00:04:24) - Yeah, there's a saying in the world of investing, angels don't fly. So if I'm making an investment, should I find something with like a 2 to 3 hour drive? So if something does go wrong, I could go there.

Josh (00:04:36) - Or are there ways where I can invest in markets that might be hotter but maybe a little bit further?

Fred (00:04:41) - No, that's that's a great question. Uh, for for us, what we do, we invest nationwide. So the notes are all over the United States. And no, it's not necessary for you to go there and physically check things out yourself. Uh, I really wouldn't recommend doing that now, if it was necessary to have an inspection done. There's vendors that will do that for you for a very affordable price. They'll go. They'll take exterior photos and prepare a report for you. And so that's really the smart way to handle that.

Josh (00:05:18) - Yeah. Now can you do this both in residential and in commercial. Can you play both sides of that?

Fred (00:05:24) - Yes, absolutely. Uh, residential is more popular simply because there's more residential notes out there in, in the world of debt as opposed to commercial notes. But. Yes. Absolutely. Uh, the same applies. Same strategy applies to both.

Josh (00:05:43) - Yeah. Can you.

Josh (00:05:44) - Do this with.

Josh (00:05:45) - Land?

Fred (00:05:45) - And yes, you can do this with land. You can do this with, uh, residential real estate, uh, as well as many, many other types of assets. Any assets that have a title that can be, uh, encumbered. Let's say, uh, you you can do this. And so that's why all these different forms of financing exist and financing originators, where they're in the business of creating the debt, and then they turn around and sell it on the secondary market.

Josh (00:06:19) - Yeah, I love this. So if we have dealmakers out there right now who are interested in maybe they're an experienced node investor or they're looking to get started and learn from someone like you. Where could people go learn from you and do a deal with you?

Fred (00:06:33) - Thank you, thank you. Josh, the best way to connect with me is go to my website which is Fred moskowitz.com. And if you prefer an easier spelling, you can go to gift from fred.com.

Fred (00:06:46) - And I have a special report on node investing that I'll be happy to email out to you. So please do connect with me. I always love speaking with investors and building relationships.

Josh (00:06:58) - Awesome, awesome. Hey guys, we did this all in under seven minutes. I hope you enjoyed the show. See you on the next episode.