Investing in notes and mortgages is a good use for cash. Yields can be 15%++ and its all secured by real estate. Buying discounted notes can make yields go much higher.
Before I invest in a note or mortgage, I need to feel comfortable about the collateral and be able to say “That’s a property I would like to own”.
There are other investments with a low risk/high yield, but notes secured by real estate are a good choice.
Regarding using your cash to lend to yourself, you need to ask yourself, “Can I invest that cash elsewhere for a higher return than I am paying myself?” If you lend it to yourself at 15% interest(like hard money), you can easily beat that yield by buying discount notes instead.
Of course, some could argue that the profit from the deal should be used to calculate the yield, but I think that taints the comparison of whether its best to borrow hard money for deals or use your own cash.
A recent post I read here asked the question “I have $10,000 liquid assets to use in rei, what is the best property to invest in?”. The responses said to use OPM to invest in real estate, but I didn’t see any responses that addressed where to invest the liquid assets. So, as a survey of the cre folk, where is the best place to park liquid assets that don’t fall under retirement savings? Money market, CD’s, stock market, notes, antique cars, baseball cards, barbie dolls, beanie babies?
I pay off my line of Credit (LOC),…upgrade my computer(s)
and send the girl friend flowers (maybe not in that order).
Sometimes I invest in the stock market since I am retired from trading
(expericence + talent = more bucks).
I buy property subject to existing financing and lease option to tenant buyers (Optionees).
Most of the property I buy needs paint, carpet, and cleaning.
It usually takes $10,000 for down payment and fix up AND it takes a couple of weeks to get the cash I have invested back from my tenant buyers.
I need at least $10,000 available all the time, per transaction that I am dealing on. I wouldn’t sleep nights if the money were tied up where I could not have access to it in a moment’s notice.
Re: Survey: If you use OPM, where do you park your savings? - Posted by Eduardo (OR)
Posted by Eduardo (OR) on May 11, 2000 at 21:07:47:
Diane–
This is an excellent question. Good responses below. You ask yourself two questions: 1. Where do I stand on the risk/safety scale? 2. Where can I get the best return given my tolerance for risk? I prefer to put my money into my real estate deals and buying paper. Things I understand and have some control over and give me several times the return of a CD at the bank. OPM is also utilized to as great a degree as possible. It is always easier to get better terms on owner-carry financing when I sweeten the pot with some cash. The combination of the two, for me, works better than doing no money down transactions and put my money somewhere else. Of course, we’re in the minority, I think. Many people appear to have no savings (can’t or don’t know how to save) and thus must do no money down deals unless they learn to either earn more/spend less or do lease options. I hope others respond to your question. --Eduardo
I would say it depends on how much cash you have on hand and what your plan is.
If you have a relatively small amount of cash and are doing rehabs it’ll probably be a good idea to keep it liquid so you can buy those materials, unless of course you have nice credit and a trade discount at a home improvement place, then you can just use that, why not ask them to give you a month or two extra grace in exchange for your buying all materials from them?
If you have more cash (like enough to buy properties with) you might want to keep it around if there are good opportunties for fast cash purchases.
Otherwise, like Steve said below, discounted mortgages are a good way to go, what with their high yields and low risk. Then you follow John Behle’s lead and reinvest that cashflow into amortized partials.
A nice way to get out of the rat race, if you like a lot of hard, would be to get lots of rehabs and buy notes with the profit. You could then improve some of those notes and borrow against them to buy more notes. Of course you could bypass the hard work by getting yourself some investors with cash on hand and use that to buy the notes
Re: Survey: If you use OPM, where do you park your savings? - Posted by Carolyn (TX)
Posted by Carolyn (TX) on May 11, 2000 at 14:45:29:
Yes, I was wondering about that too. None of the financial vehicles mentioned would yield anything like the return on investment that some hard money lenders get. Even equities aren’t doing so well lately and are certainly unstable. Why is it better to use OPM when it’s so expensive. I think Robert Allen’s new book even suggests hard money lending to his readers as a stream of income. If you can make money lending to others why can’t you just borrow from yourself?
