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Note Finance
A note is a written document that states a promise to repay money owed by a borrower to a lender. It's a promissory note and the main terms included are: the amount, rate of interest, specified repayment time period - such as monthly, quarterly, annual or lump-sum payment and the length of time in which to fulfill this promise.
The NOTE is also called as: Paper, Promissory Note, Pro-note, Debt Instrument, Cash-flow, Discounted Paper/Note, Receivable, Real Estate/Mortgage Note, Trust Deed, Seller Carry Back, Vendor Take Back (VTB) etc. All these relates to one thing - a documentary promise to pay back.
Variety of notes are bought and sold every day, secured or unsecured by collateral that was unthinkable a few years ago. Raw land, Buildings, Factories, Equipment leases, Gas stations, Used Cars, Businesses, Boats/Yachts, Airplanes, Mobile Homes without land, Accounts Receivable, Lottery winnings, Legal settlements, Judgments, Inheritances, Medical and Dental Receivables, even Cemetery plots (of course, they have to be owner occupied) and the list goes on and on … But, most commonly used and the main stay of this investment is still Real Estate Notes.
You can buy and sell almost ANY transaction in which there is a promise to pay over time. The time value of money determines the discounted price of a note.
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Let's look at a typical note and why the Note Holder wants to sell it?
These figures represent an average note.
Original amount $25,000 Interest @10% p.a.
Amortized over 15 years (180 months)
Monthly payment $268.65, out of this 18 payments already been made and 162 remaining
Present balance is $23,833. |
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The Note Holder is now selling it at $17,875, which is at 25% discount and the buyer gets 25% rate of return on his/her money invested. Why would the Note Holder take $17,875 cash now for his $25,000 note? |
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He gets a lump sum of cash now, instead of small monthly payment for months to come |
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To pay for medical emergencies or taxes or clear credit card debt |
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To buy a new home or business or to consolidate assets |
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To pay for college education or to pay for a long awaited vacation |
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Or simply to get rid of a long-term repayment risk and protect from future inflation |
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For online posting of your notes and to learn more about note business, please click here www.cash4cashflows.com/pronotes
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Please send us your questions or comments at Contact us
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The Rule of 72
An interesting concept to understand the power of compounding money is the Rule of 72. If you want to know how long it will take to double your money, just divide 72 by the interest rate compounded yearly (the investment rate of return). The answer equals the number of years necessary for your money to double. For example: if the interest rate is 8% p.a, you'll double your money in 9 years - i.e. 72/8 = 9. If it is 12% 72/12 = 6 yrs.
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