Bryan's Favorite Asset Class | Episode 207 - a podcast by Bryan Ellis - SelfDirected.org

What's a great way to diversify your real estate portfolio so you STILL get great cash flow… but without the headaches or legal risk of having a constant stream of tenants? This may be my favorite type of asset of all, my friends, and I'm going to tell you about it right now. I'm Bryan Ellis. This is Episode #207!

Hello, SDI Nation! Welcome to the podcast of record for savvy self-directed investors like you, where we help you to find, understand and profit from exceptional investment opportunities!

Check my first article for TheStreet.com, a major news website that focuses on stock market investing. It seems they wanted to get some perspective about the real estate world, and they feel that your's truly will bring them a big audience. I'm betting they're correct. Hehehe.

So, the last couple of days have been a bit downcast, I'll admit. The ugly lawsuit going on in Virginia against that landlord who made the unthinkable mistake of demanding background checks… and yesterday's discussion of the harsh reality of the fact that Uncle Sam is not on your side… well… I know that's a mouthful of bitterness to swallow.

But let's return from the land of gloom and doom to focus on what we all love: Investments that are SIMPLE, SAFE and STRONG!

Today I'm going to tell you about my favorite asset class: Real Estate Notes! But let's not bore ourselves with discussions of LTV's and interest rates and principal balances. No way! Rather, I'm going to tell you a story about a wonderful, amazing, magical golden box. Here's the story:

You are visiting Omaha, Nebraska, headquarters of Berkshire Hathaway, the investment firm made famous by super-investor Warren Buffett. You're there for Buffett's annual shareholder meeting. This event, if you've ever been to it, is totally unlike any other shareholder meeting in the world. People come in from all over the world to attend this meeting – very, very smart, well informed and well connected people attend this meeting.

They attend it because they're going to get the chance to hear from the man himself, the Oracle of Omaha… the one man on the planet who is revered as something nearly god-like in the investment world, none other than Mr. Buffett himself. Buffett always uses this meeting to give his impressions of how he's performed at Berkshire Hathaway, and he also talks more broadly about the state of the stock market, the economy, and the world.

When Buffett speak, people listen… and that's why you're there… to learn from THE MAN.

So, much to your delight and surprise, Buffett grabs you by the arm and pulls you into a private room. He says, “Look, I've got a magical box made of pure gold. This box is magical because every month for the next 30 years, it's going to spit out $1,000 cash. It just works automatically, no effort required from you. Plus, the box itself is worth $150,000 just from the gold content. I'd like to sell this box to you for only $100,000. Would you like to buy it?”

So you think it over… and honestly, it's kind of a no-brainer. You get $1,000 per month for 30 years. And the box is worth $50 GRAND more than you've got to pay for it. If that wasn't enough, it's none other than WARREN BUFFETT recommending it to you… and like the box, his reputation is pure gold. So you tell Mr. Buffett: “Yes, I'd like to buy the magical golden box.” Then he looks at you and says “GREAT! But there's one catch: In 30 years from now, I get the box back."

Well, that puts a bit of a curveball in your plans. You were secretly considering just “flipping” this magical golden box to capture as much of the $50,000 profit as you could, but it turns out, that could be difficult since Buffett gets the box back in 30 years from now.

But you put pencil to paper, you do the math, and you realize that it's still a pretty strong deal to get $1,000 per month for 30 years in exchange for $100,000 now. But then, something important occurs to you. So you ask:

“Mr. Buffett, what happens if the box stops working correctly, and doesn't continue to pay me $1,000 per month. What then?”

And with a gleam of pride in his eye, Buffett looks at you and says “NOW you've asked the right question. I promise you on my word that you'll get your $1,000 per month for the next 30 years. But if something happens, and for some reason you DON'T get your monthly payment… THEN, and ONLY THEN, can you sell the box to recoup your investment and lost profits.”

So you noodle the whole thing for a minute… and when you do, what you see is that this deal that Buffett is proposing to you is simple… because in return for investing $100,000 you get $1,000 per month for 30 years. It's safe because if for some reason your money doesn't get paid, you can sell that box, which is worth $50 GRAND more than you paid. And it's strong because – according to my trusty dusty, handy dandy financial calculator, the yield you'd be receiving on your money would be 11.63%... so that's really nice.

That's it… it's a simple, safe and strong deal… it meets that basic criteria that we espouse here at SDI Society.

So why this mythical story about a magical golden box? Because it's really just a story about how real estate notes work. A note is just a financial instrument that entitles it's owner to cash flow – payments from a mortgage. And just like that golden box, if you don't get your payments, you can sell the asset itself – the house – to get your money back.

The opportunity lies in the fact that notes are what's called “negotiable instruments”. In other words, they can be bought and sold.

You could sell the cash flow – the monthly payment stream – to somebody else for what you paid for it, or for more or for less. And if you get your payments as promised, it's all good. If not, you can sell the house attached to the note and get your money back that way.

Same deal with a note. The level of flexibility you have with these things is simply astonishing.

We won't get into the complexities right now, but let me make this clear to you: There's simply no more flexible type of financial instrument than a good real estate note, in my humble but entirely accurate opinion. Hehehehe. The options are astounding… and these instruments can easily be engineered – or even RE-ENGINEERED – to give you PRECISELY the level of simplicity, safety and strength that your portfolio needs.

But how do you find them?

Patience, my friends… patience! I'll cover that in tomorrow's episode. As for now, I have a favor to ask of you: *PLEASE* consider doing me a favor. In case you didn't know, there's now a VIDEO version of this show that's on YouTube. I'd be SO GRATEFUL if you'd visit the youtube page right now for this show – it's at SDIRadio.com/youtube – and PLEASE subscribe to the SDI Society channel there. It's free, it's simple… and I'll be truly grateful to you!

Tomorrow we'll hit the ground running with some tips on FINDING great note investments. You're going to love it. Until then, my friends: Invest wisely today, and live well forever!

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