17 Advantages of Note Fund Investing

What Exactly is Note Fund Investing?

Note Fund Investing technically means investing in shares of a privately-held company like Plural America that manages a portfolio of mortgages (aka notes), but participating in a note fund really means investing in the company managing the fund. Even more specifically, by investing in a note fund, you’re investing in the management team behind the fund, as well as the systems and staff that support the company’s operations.

As important as the management team and systems are, don’t forget that the entire note fund management enterprise is back-stopped by the real estate securing the notes themselves. For example, Plural America can acquire $12M worth of notes (based on Unpaid Principal Balance) secured by property worth $27M.

That said, let’s dive into some of the advantages for you, the investor, of adding note fund investing to your portfolio…

What are the Main Advantages of Note Fund Investing?

1. Favorable Investment in the COVID era.

As opposed to owning a rental property where lost rents are generally never recouped, missed mortgage payments get added back to the principal balance owed. It’s also notable that requests for mortgage payments forbearance are currently below 9% nationwide. Further, with a note fund investment, there’s never a need to visit a property or meet a tenant or contractor in person.

2. 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.

3. Asset-Backed Investment.

The mortgages owned by a note fund (i.e. by you, the investor) 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.

4. 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 what are typically highly developed systems and staff. Compare the passivity of fund investing to owning real estate, with the well-known “tenants, toilets and termites” responsibilities.

5. 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 Plural America note fund is only $5,000, so there’s no need to have your money sitting idle.

6. Liquidity.

By ‘liquidity’ we mean having access to your invested capital when you need it. For example, Plural America Capital Fund offers a shorter term than the Income Fund. With the Liquidity Fund, you’re earning a healthy return while still maintaining access to your capital.

7. Boost your Return through Compounding.

When you invest in Plural America, you have the option to compound your return, meaning you can re-invest your quarterly Preferred Return payment. Compounding in this way over time can significantly boost your return. For example, choosing to compound in the 3-year, 8% Income Fund increases your overall annualized return to 9.2%.

8. Limited Liability.

Landlords are on the hook for “slip and fall” and other lawsuits. General fund investors are shielded from such liabilities by the nature of the investment.

9. 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.

10. Professional Management and Experience.

When you invest in a fund like Plural America’s you benefit from our professional management and experience in acquisitions, workouts, and portfolio management. You don’t need to have experience managing notes yourself.

11. Peace of Mind.

When investing in a fully audited Note Fund like Plural America’s, consider its payment history and adherence to SEC reporting requirements (e.g. Blue Sky and other filings). Plural America’s track record in both regards is impeccable.

12. Tax Advantages.

Your returns from note fund investments are taxed at a lower rate than earned income because they aren’t subject to the taxes that go along with earned income (FICA, social security, etc).

13. Your Money is Working, not You.

With fund investing, your capital is doing the “work”, so none of your time or effort is required to earn a return. Contrast this to earned income or even profits from a business you own but must work in.

14. Lower Minimum Investment.

Plural America’s minimum investment is currently only $5,000 for the Liquidity Fund and $25,000 for the Income Fund, making it easy to add new money or re-invest your earnings.

15. Flexibility of Funding.

Investment in Plural America’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 Plural America’s fund investors do just that.

16. Own your Retirement.

See the point above? It bears repeating that you’ve got options for your retirement funds far beyond Money Market accounts or Wall Street products. By diversifying your retirement funds into private placements like mortgage investment funds, you’re taking control of your portfolio and quite possibly speeding up your timeline to reach financial independence.

17. Simplicity.

As opposed to owning real estate or even performing notes, there are virtually no actions needed on your part post-funding; it’s a “set it and forget it” investment. So are stocks, true, but mortgage investment funds are backed by tangible assets and offer more predictable returns across a variety of market conditions.