Chris Larsen explains how individuals can 'function as a bank' by purchasing mortgages and land contracts. He divides note investments into two main buckets—performing (stable, monthly payments and steady cash flow) and non-performing (borrowers behind or not paying, requiring workouts or foreclosure)—and recommends beginners focus on performing notes due to lower volatility.
As an individual, you can essentially function as a bank. Yes. So you can go out and buy mortgages, land contracts, you know, on, on the market and hold them. And so then you kind of have all the right, the same rights as the bank does, which is pretty powerful. So yeah, there's a million flavors of. No, like at a high level we kind of tend to put them in two buckets. Right. So there's a performing and non performing. Performing is what most people would, you know, think of. That's where borrowers making payments every month and you just sit and collect cash flow. Right. So it's just kind of like any other kind of cash flow investment. And then you can get into the non performing world, which I've done a lot of those. It's not always for the faint of heart but you know, that's when you go out and buy a loan, they're actually the borrower isn't making payments or they're behind and then you either like do a workout with the borrower or you know, you can take it through the foreclosure process. Those are real wild. So what's interesting within the world, even though the world of notes is fairly small, when you dive into it, you can have like radically different business models. So if you're focusing on the performing notes, which I kind of recommend, especially if you're starting out, you know, it can be, depending on what you buy, it can be like super stable, steady cash flow income. And then as you get into different parts of non performing, it can really be the wild west with a wide range of outcomes.
