Denver Estate Real
WEALTH BUILDING GRADUALLY
Denver Estate Real
Promissory notes are great tools for building wealth because they are available in just about any amount, any interest rate, any duration, and any risk factor. They can be individually created and tailored to specific needs and circumstances; they can be purchased individually or in groups; they can be bought for all cash, they can be used as collateral security and borrowed against; they can be bought for a combination of cash and debt. One of the main reason promissory notes are acquired is to provide a portion of, or all of, the income needed for financial independence. A simple definition of financial independence is having enough passive income to cover all of one's living expenses; not having to go to work to pay one's living expenses.
Denver Estate Real
Having ,000 invested in a 7% annual interest promissory note amortized over fifteen years provides .88 per month for 180 months; ten similar notes will provide 8.83 per month. This shows how, by taking small investment steps, a substantial monthly income can be created over time.
Denver Estate Real
WHO ARE THE PLAYERS AND WHAT DO THEY DO?
In order to understand the promissory note business it is necessary to become acquainted with main players. The players described next are "institutional entities" or professionals. But, at the private party level (the little guys level), all of their functions are duplicated-but on a much smaller scale-by private players. Essentially, there are four main parties involved:
Lender-originates the note and is the party that injects the original cash into the business. The lender can be a commercial bank, a credit union, a savings and loan association, or a private party. the lender normally structures the terms and conditions of the note to be mutually acceptable to the borrower and itself.
Borrower-is the party who needs the cash. The borrower adds value to the note by pledging his personal credit-promise to pay-and some of this property as collateral security guaranteeing the repayment of the loan.
Note Dealer-sometimes called the "secondary market"--buys the note from the original lender. The cash from this purchase goes back to the original lender and replenishes its cash and allows it to make another new loan to another borrower. Usually, the note dealer does not hold the promissory note but, immediately sells it.
Investor-pays the note dealer cash for the note and holds it long-term for its income and cash flow benefits. Institutional investors are life insurance companies, casualty insurance companies, pension plans, mutual funds, and closed-end funds.
HOW THIS TRANSLATES INTO THE PRIVATE PARTY PROMISSORY NOTE ARENA
We can easily transfer the above institutional promissory note information into the private party promissory note arena by using a common example: "A" (Lender) sells his real estate property to "B" (Borrower) and carries back a seller financed promissory mortgage note; "D", (note dealer), arranges a sale of the note to "I", (Investor) the private party investor.
TYPES OF PROMISSORY NOTES AVAILABLE TO PRIVATE PARTY INVESTORS
There are many different types of notes available to private party investors. They are available in many different sizes, with many different interest rates, and many different maturities. Following are examples: Real estate secured promissory notes-single family houses, multi-family properties, vacant land, small commercial properties, small industrial properties, etc.
Contracts secured by real estate-installment land contracts, leases, etc
Automobile notes Mobile home notes Divorce notes Partnership dissolution notes Business sale notes Cemetery Pre-Need Contracts Equipment leases
The above list, though not all-inclusive, certainly indicates the broad assortment of promissory notes available to the private party investor. All of these notes can be bought with face amount annual interest rates ranging between 5% and 10%; it is very common for these types of notes to sell at a discount from their face amount. The mathematical effect of the discount is to increase the effective interest rate above the face rate. Usually, when purchased at a market rate discount, these types of notes will yield the buyer 9% to 19%.
SUMMARY
There are few opportunities available today for the small investor-the little guy-to earn 5% to 19% on their money! Promissory note investing should be at the top of every small investor's list!
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