Patience is a Virtue and Your Biggest Note Investing Asset
Patience is a virtue, but it can be difficult for note investors to master. Focusing on short-term results may impede progress toward long-term investing objectives, limiting the potential of your note portfolio. Over time, the notes that you invest in may prove less important than your ability to be patient in looking for the next good note investment.
Impatience is a trait many investors share and is not specific to just note investors. In doing some internet research it seems many investors lean toward short-term investing rather than long term, expecting to hold investments for a little over three years on average. Less than a fifth of investors said they held investments for at least five years.
A disciplined approach can help note investors capture more favorable returns over time while potentially minimizing losses. Reaping the benefits of patience begins with shifting your note investor mindset. Instilling the ideals of Value-based investing for the long term rather than Speculative investing.
Take stock of your biases. Biases, or the tendency to lean a certain way, can unconsciously influence your decision-making when buying notes. Payment history bias, for example, can lead you to believe that a note will perform a certain way based on its most recent history, say the last 6 months. Safer to review the entire payment history from the beginning of the note. Collateral value bias, as another example, can lead you to believe that a note is secure based on the value someone told you. Safer to obtain your own valuation of the collateral to find the true market value.
Loss aversion bias trains your mind to seek to avoid losses, rather than pursue lofty gains. The difficulty is that these types of biases are wired into our brains by unknowledgeable trainers and advisors that you might give your trust to in the hopes of purchasing good notes. Have you heard “Trust but Verify”? Do it!
It is easy to be impatient and follow our emotions when the wrong people are telling us all the right things. Being emotionally tied to your money makes it easy to react rashly and make mistakes at the wrong times (i.e. buying unsafe notes for inflated prices, paying too much for a poor-quality note).
Finding and buying good profitable performing first position Seller Financed Notes for long term cash flow and passive income is not easy. At times you have to go against the herd and force yourself to pass on what appears to be a good note but the facts tell you differently even though your brain is fighting you every step of the way.
Note investors can develop patience by being aware of their own behavioral perception. It’s like the arrow analogy. When you look at an arrow that’s pointing up, your mind assumes that the arrow will continue moving in that direction. The same is true if the arrow points down. This type of thinking also applies to note investing. You remember what happens when you assume, right? Makes an a** out of you and me. Never assume, trust but verify and get the facts for yourself.
Diversification in your note investing can also help counter impatient behavior. Having notes that you are comfortable with in a range of different sizes, in different areas, in different states and on different property types will spare you from the highs and lows, curbing impatience and reducing temptation to buy the next note that comes along just because you are ready to buy a note.
Note investors should avoid emotional forecasting. Fear and anxiety are often the main drivers of impatient behavior, and they can affect how you invest now and later. A characteristic of a fear response is to project feelings into the future.
Well-grounded note investors stay in the present, while distressed note investors project their feelings into the future. Their assumptions about what may happen versus what is happening, in the real estate market and with their note investments, can amplify fear and trigger impatience. Having a plan for practicing patience can minimize this projecting behavior.
Routinely reassess your note investments to make sure the notes you are buying still align with your objectives. Prioritizing your goals can help you balance the desire for a questionable note purchase. Knowing what you would like to accomplish, by when, and having a plan to help you meet your goals provides guidance on how and when to properly buy that next note. My advice to impatient note investors is to focus on the next 20 years, not the next 20 days.
Ensure that your note portfolio will be cash flowing for years to come and into the future by being patient, keeping your emotions out of your decisions, never assuming and trusting but verifying the pertinent facts. Value based note investing for first position performing Seller Financed Notes is a safe secure investment for the long term. Remember success demands action, keep on marketing, it’s going to work! TWITA! (That’s What I’m Talkin’ About!)
Jeff Armstrong of Armstrong Capital has been a note investor and broker specializing in the performing seller financed note industry since 1991. For more updated and current information on how he can help you with your note business, your note investments or to request a quote on a note you currently have visit www.armstrongcapital.com to email him and subscribe to his weekly Note-Able Newsletter.