Introduction: What Exactly Is Note Fund Investing?
Here’s the simple answer: a Real Estate Note Fund is a powerful, passive, diversified asset class, backed by real estate.
More technically, real estate note funds hold loans bought in bulk at discount from the banks. (Yes, mortgages are bought and sold as a distinct asset class.) In other words, funds like ours invest in pools of residential and commercial mortgages.
Who could benefit from investing in real estate note funds?
If you’re a busy professional or even a busy active real estate investor or landlord, this option may appeal to you because the fund manager does all the work and assumes all direct risk.
We like to say that investing in a real estate note fund is like investing real estate without (the hassles of) the real estate itself.
Why did we create this report?
The purpose of this report is to answer the main questions we’ve heard from investors over the years in order to show people like you (who are likely new to this asset class) how it compares to other alternative investing options.
We also wanted to point out some of the advantages of this unique and little-known asset class as a means of diversifying your investment portfolio.
As you’ll see below, real estate note funds can be a great option for investors who are short on time, need something scalable, and don’t want to have to actively manage the investment… all while enjoying attractive returns with a real estate-backed asset class that tends to perform well in both up and down markets.
That said, let’s dive into some of the advantages for you, the investor, of adding real estate note fund investing to your portfolio…
What are the Main Advantages of Note Fund Investing?
Disclaimer: We had PPR’s note funds in mind when compiling this list of advantages, so we can’t guarantee that all note funds offer all the advantages in the list below.
- Passive investment, i.e. “mailbox money.” Participating in a note fund requires zero work on the part of the investor. The fund’s operations team handles the work of managing the assets (mortgages) via highly developed systems and staff.
- Asset-backed investment. The mortgages owned by a note fund are backed by the real estate securing the loans. Contrast this to stocks. If a company is suddenly rendered obsolete by a disruption in technology, the value of its stock certificates can plummet since that value isn’t necessarily based on tangible assets.
- Favorable Investment in the COVID era. As opposed to owning rental property where lost rents are generally never recouped, missed mortgage payments get added back to the principal balance owed in PPR’s portfolio of loans. Further, with a note fund investment, there’s never a need to visit a property or meet a tenant or contractor in person.
- No fees. Even self-managed stock index funds have fees that eat into your returns, and brokers earn their living entirely from fees they charge investors. Not so with note funds.
- Scalability. Keep your money working for you. No inventory to invest in? No problem! You don’t have to wait for a great performing note or investment property to come along to get your capital working for you. The minimum investment in a PPR note fund is only $25,000, so there’s no need to have your money sitting idle.
- Liquidity. By “liquidity,” we mean having access to your invested capital when you need it. For example, PPR’s 6% Fund offers a shorter term than the 10% Fund. With the 6% or even the 8% Fund, you’re earning a healthy return while still maintaining access to your capital.
- Boost your return through Compounding. When you invest in a PPR Note Fund, you have the option to compound your return, meaning you can re-invest your monthly Preferred Return payment. Compounding in this way over time can significantly boost your return. For example, choosing to compound in the 3-year, 10% Income Fund increases your overall annualized return to 11.6%.
- Limited liability. Landlords are on the hook for “slip and fall” and other lawsuits. General note fund investors are shielded from such liabilities by the nature of the investment.
- Privacy/Anonymity. When investing in a note fund, a “private placement,” your personal or corporate name isn’t made public, unlike when owning real estate.
- Professional Management and Experience. When you invest in a fund like PPR’s, with a 12+ year track record of performance, you benefit from our professional management and experience in acquisitions, workouts, and portfolio management. You don’t need to have experience managing notes yourself.
If you have any immediate questions about our current offerings, please call the Investor Relations department at 877-395-1290 or view our Current Offerings.
- Lower Minimum Investment. PPR’s minimum investment is currently only $25,000 for the Liquidity Fund and $50,000 for the Income Fund, making it easy to add new money or re-invest your earnings.
- Flexibility of Funding. Investment in PPR’s note fund may come from cash as well as retirement accounts such as IRAs – or a combination of these sources. That’s right – you can use retirement money to invest in private placements. In fact, about half of PPR’s fund investors do just that. (Just ask one of our Investor Relations staff how other investors do it.)
- Peace of mind. When investing in a fully audited Note Fund like PPR’s, consider its pay history and adherence to SEC reporting requirements (e.g. Blue Sky and other filings). PPR’s 14+ year track record in both regards is impeccable.
How about Note Fund Investing vs. Hard Money Lending?
Sometimes savvier investors refer to their Hard Money Lending as a similar “be the bank” approach, and it very well can be, but consider these advantages of note fund investing:
- Elimination of “gaps” in earning a return on invested capital. Hard money lending can be profitable, but it typically means that your capital is moving into and out of specific investments every 3-9 months. With fund investing, your capital stays in play for a set term. This frees up your time since it requires no active involvement and avoids idle capital not earning a return.
- Simpler Due Diligence. With note fund investing, you don’t need to know how to perform due diligence on the borrower and property attached to the hard money loan.
- Scalability. Yep, that’s right! Scalability again! As a hard money lender, you could (and will, eventually) have difficulty finding appropriate deals to fund. With a note fund, as you have additional capital to deploy, you can simply add it to your original investment and even compound your return, scaling your profits along the way.
How about Note Fund Investing vs. Investing in Individual Notes or REO?
We also encounter individual note investors or investors who buy off-market REO deals, and here are some of the advantages of note fund investing to those asset classes:
- Diversification. A fund investor may have more diversification in numbers without deploying the amount of capital needed to purchase all of the fund’s assets. For example, if a single asset in the fund (that owns a large number of assets) were to lose some or all of its value, this typically wouldn’t have a large impact on the individual investor. Investing in a note fund means that you’re investing in multiple notes (and also multiple real estate markets), thereby spreading the risk among all the assets owned by the fund.
- Buying Power. By pooling money together, fund participants purchase mortgages in bulk, which in effect gives the group access to wholesale pricing.
- Sourcing. Fund managers have sources of assets that the individual investor doesn’t have. Many major sources of assets like banks and servicers sell loans only in large packages and only to carefully vetted buyers.
- Simplified Due Diligence. Just like with Hard Money Lenders evaluating each and every individual deal, other than reviewing the management team you’re investing with, you wouldn’t need to know how to perform due diligence on each loan purchased by the fund, and you wouldn’t need to pay for any of the services that process entails.
- Scalability. Here’s that word again! Note funds like ours tend to be well-equipped to grow in response to changing market conditions, and their professional staffs and proprietary software and other systems allow them to scale more easily than an individual investor could. For example, if the opportunity to purchase a large pool of mortgages became available, a note fund managed by PPR has the resources to move on the trade, whereas an individual investor would likely find it challenging to do so.
- Less liability. In a note fund, there’s no need to worry about the kinds of personal liability that note owners and landlords face in a litigious society.
Ready to get started? Or want to learn more?
Are you intrigued by the thought of investing in a mortgage investment fund? Maybe even excited? Or still fuzzy on the details of how it all works?
Our goal was to get you thinking and to expose you to an investment that few know about and even fewer participate in.
So, if you’re intrigued, excited, at least a little less confused, or just annoyed that you didn’t know about this years ago, we succeeded in our mission.
If you have any questions about investing in one of our note funds, please schedule an appointment with our friendly Investor Relations team, and we’ll do our best to help.
To your success!
The PPR Investor Relations team
With regard to the note funds PPR manages, you can get more information here: