February 22, 2021

Hands-On vs. Hands-Off Investing

For some investors, there’s no better thrill than rolling up their sleeves and getting in the trenches to achieve substantial returns. For so-called “hands-off” investors, there’s nothing more valuable to them than their time, which means they almost exclusively look for investments they can put on autopilot.  

There’s no right or wrong way to approach investing in this regard. Both have their merits. We’ll take a look at both approaches before revealing an investment instrument that allows you to benefit from the best of both worlds. 

Why Take a Hands-On Investing Approach? 

Some people love to get involved with their investments for the benefit of adding value and being part of the process. You can see it with real estate, for example. Some investors have a contracting background and genuinely love fixing and flipping houses because they’re getting paid to undertake work they love anyway. 

Better yet, these types of do-it-yourself investments almost always return higher yields. For instance, in the case of fixing and flipping, if you carry out the necessary work yourself, there’s no outlay on outside contractors, leaving you to recoup more of the resale value. That’s why the average fix-and-flip return comes in at 40% ROI

The same is true of other types of investments, such as stocks. You can achieve a much higher return on your money if you regularly monitor your portfolio and make the necessary trades yourself rather than hiring a financial advisor who takes a hefty slice off the top. 

But there are, of course, downsides to being a hands-on investor. Downside number one is time. Getting hands-on with investments takes time. That’s time you could have spent researching and finding more high-return opportunities that are hands-off in nature. When you factor in time into your 40% ROI on a flipped house, it dips quite considerably. 

Downside number two is increased risk. Many people think they can take on a fix-and-flip project only to realize the scope of the work is well beyond their wheelhouse. The problem? There’s no room left in the budget to hire specialist help. 

So you’re stuck with a house that isn’t going to achieve much on the open market, and that is going to leave you staring at a loss after real estate agents and legal fees have been factored in. 

The same risks are true of stocks, except they could leave you with nothing to show for your investment. If you get swept up in a market craze such as the Gamestop saga, you could jump in headfirst and lose everything. By contrast, an experienced financial advisor would have kept your money well clear of such volatility.       

So that’s hand-on investing covered… let’s take a look at hands-off investing. 

Why Might You Favor a Hands-Off Investing Approach?

Hands-off investing takes the opposite approach. It leaves the heavy-lifting to the professionals rather than getting involved in the nitty-gritty details yourself. 

Using the example of a fix-and-flip investment property, a hands-off investor might hire contractors, real estate agents, and lawyers to handle everything. They may even employ a project manager to oversee the whole process and contribute very little over and above the money to make it all happen.

The advantage here is you lose very little time. You are pretty much collecting a passive income (depending on how hands-off you really are). Rather than working for your money, you’re making your money work for you. 

Some investors prefer a hands-off approach because they have a full-time job and don’t have the time to get involved in their investments. Other investors spend their free time looking for more hands-off opportunities and can amass a portfolio of real estate, stocks, and other investment opportunities much faster. 

The downside is that you tend to make less since you pay many people to do jobs you could have done yourself. Hands-off investors accept taking a haircut on their returns in order to avoid the stress and risks involved in getting hands-on themselves.

But what if you could invest in a hands-off opportunity with the returns of a hands-on investment? 

Distressed Notes Can Deliver the Freedom of Hands-off Investing with the Benefit of Hands-On Returns

With a distressed note, you can outsource the whole process. The industry is chocked full of third-party servicers and vendors that can handle everything for you. Here at Revolve Capital, we have built a strong network of individuals and companies who can carry out all the services and do the work, so you don’t have to. 

Concerning how it all works, a servicer handles all communication with the homeowner. They can arrange a payment restructure if the homeowner chooses to stay in the home. Alternatively, they can initiate foreclosure or bankruptcy proceedings if the homeowner refuses to start paying the mortgage again. Servicers will do as much or as little as the note-buyer chooses for a nominal monthly fee.

On the vendor side, they typically work on property preservation (caring for the inside/outside of property, repairs, maintenance, etc.). However, plenty of vendors can renovate a home if you’re pursuing a fix-and-flip play with your distressed note. 

When it comes time to a non-performing note, there are several outsourced strategies available, including: 

  • A servicer can try to renegotiate the terms of the mortgage to something the homeowner can afford. This is called “loan modification” or “loss mitigation,” which would turn the non-performing note into a re-performing note.
  • A servicer can arrange a “Deed-in-Lieu” or “DIL”, a situation whereby the homeowner, facing foreclosure, gives up legal rights to the home in exchange for being relieved of all mortgage debt.
  • You can instruct a servicer to foreclose on the homeowner and proceed to enlist the help of vendors to pursue any number of strategies applicable to a fix-and-flip property (such as renovating the home and selling it, turn it into a rental, further develop the lot, subdivide, etc.).

But here’s the kicker. Because you can pick up a property (via a foreclosed or deed in lieu distressed note) for as much as 20-30% or greater below the market asking price, you can take the approach of a hands-off investor and STILL achieve double-digit returns. 

Better still, there’s minimal risk involved because your entire investment is backed by the real estate asset involved. Even if you can’t make your primary exit strategy work, you still have the security of the physical asset to fall back on. 

Speak to the Revolve Capital Group About A Hands-Off Approach to Distressed Note Investing 

If you don’t have the time to get involved in a distressed note investment, that doesn’t mean you should miss out on incredible opportunities when they pop up. Here at Revolve Capital, we can utilize our network of servicers and vendors to provide you with hassle-free returns on your investments.

Not only can these returns beat those made on the stock market, but they also have far less risk attached to them. So if you want to secure hands-on returns without lifting a finger, make sure you fill out our buyer application form to view our latest note opportunities. 

From everybody here at Revolve Capital Group, we look forward to working with you.