Note investing has emerged as an increasingly popular alternative investment strategy among members of the BiggerPockets reddit community. As investors grow wary of volatility in stocks and low yields in bonds, many are turning to real estate notes as a way to generate consistent, predictable income. By purchasing existing mortgage notes, note investors can earn attractive returns with less hands-on management than owning rental properties. According to recent discussions on the BiggerPockets subreddit, note investing stands out for its passive nature, security backing, and resilience to market swings. However, reddit users also point to due diligence challenges in evaluating notes and identifying the best opportunities.
Note investing provides stable cash flow outside volatile stock market
Many BiggerPockets reddit users highlight the stable cash flows offered by note investing versus the volatility of the stock market. As one user commented, ‘I like getting a reliable 10-12% return without watching the value of my portfolio fluctuate wildly.’ By collecting regular principal and interest payments, note investors can generate consistent monthly income. This appeals to risk-averse investors wary of market corrections. As another reddit user explained, ‘Note investing gives me confidence that no matter what happens with asset prices, I’ll still get my money each month.’ The security backing mortgage notes also provides downside protection lacking in stocks.
Higher yields than bonds with real estate collateral
For investors dissatisfied with paltry bond yields, note investing represents an attractive fixed-income alternative. As one BiggerPockets reddit commenter stated, ‘I shifted a big chunk of my low-yielding bond portfolio into notes yielding 8-10%. The consistent cash flow is great.’ While notes do not offer the same guarantees as government bonds, they provide security via collateral in the form of real estate. If the borrower defaults, the note holder can foreclose and take ownership of the property. ‘I like having a hard asset behind my notes,’ explained one reddit user. ‘It makes me feel better about tying up my capital long-term.’ However, note investors caution about relying too heavily on potential property appreciation.
Portfolio diversification and non-correlation to stock markets
Active members of the BiggerPockets subreddit frequently make the case for adding notes to an investment portfolio for diversification benefits. As one user put it, ‘Notes have a low correlation to stocks and bonds, so they improve my portfolio risk-return profile.’ When public equity markets decline sharply, notes may be unaffected as borrowers continue making payments. Several reddit users even described adding notes as a way to offset stock market risk in their portfolios. However, others warn about concentrating too heavily in a single asset class. Moderation and balancing notes with stocks, bonds, and other alternatives remains vital.
Due diligence necessary to identify best note opportunities
While BiggerPockets reddit users extoll the virtues of note investing, they also emphasize the due diligence required to source and evaluate opportunities. As one commenter explained, ‘There’s a huge range in note quality, so you need to do your homework before investing.’ Reviewing borrower finances, property appraisals, loan terms, and default scenarios is essential. Multiple reddit users recommend partnering with an experienced note investing firm or broker to gain access to thoroughly vetted notes. However, this comes at the expense of returns. ‘I accept slightly lower yields to invest in notes with all the i’s dotted and t’s crossed,’ commented one user. ‘It’s worth paying for the expertise.’
Discussions on the BiggerPockets subreddit reveal note investing to be an increasingly attractive alternative for investors seeking stable passive income outside the stock market. However, proper due diligence remains critical to investing success.