Promissory Note Investing - Principles And Tips

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Because of the uncertainty of the stock market, many investors are looking for safer and more predictable ways to invest their money. Promissory Note investing, which is also know as Private Money Investing, and Hard Money Investing, offers an individual the opportunity to earn safer, more predictable, and higher returns on their money.

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Promissory Note investing is fairly low risk because the loans are backed by the appraised value of the collateral security plus the promise to pay of the borrower. Generally, the loans are conservative--at about 65% of the appraised value of the security. In case of a foreclosure, the property is sold to recover the funds. The borrower's promise to pay and credit provide an additional measure of protection and an exit strategy. Additionally, hazard policies (fire, hail, wind) are insuring the property. The title to the property and the note holder's interest is also covered by insurance-title insurance and lender's insurance. This is the correct way that the investment is structured.

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Private Mortgage Notes provide borrowers with an alternative to traditional bank financing for real estate properties. A borrower may not want to pursue bank financing due to time constraints, credit worthiness, or other factors, so they look for individuals or groups to finance their investment. Investors/lenders will take on the risks of lending, and in exchange, will receive a higher than normal interest yield on their investment.

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Yields for private mortgage notes are generally higher than the traditional investments available. Return rates of 9% to 15% are typical. The more risk the lender is willing to accept, the higher the return expected. Generally, you want to be listed as the first position lien holder on the property-the first mortgage. You should fully understand the circumstances of a particular note investment before determining the amount of risk you are willing to accept. Take your time and get all of the information that you need.

As in any successful business, being in the promissory note investing business requires that certain important contacts are developed, and certain important skills are acquired.

Promissory Note Investing Tips

Plan
• Plan your cash needs and cash availability
• Plan your time requirements-learning and training time, networking time, personal time
• Plan your business development schedule-develop target dates and target goals

Skills
• Understand the meaning of key words in the loan documents
• Understand the legal terms used in the note business
• Understand the numbers used in calculating investment returns and expenses
• Understand your legal responsibilities
• Understand the borrower's legal responsibilities
• Understand the foreclosure process in your state
• Understand risk in general, and note investing risk in particular

Contacts
Build business relationships with people you can trust
• Investors that you can share ideas with
• Investors that can provide some guidance and knowledge
• Mortgage brokers
• Realtors
• Title insurance companies
• Real estate appraisers
• House inspectors
• Attorneys that specialize in real estate law
• Promissory note experts who advise and consult on notes

Remember, you are probably investing all or almost all of your net worth. You may be also investing other people's money-people that trust you and that you do not want to disappoint. You are making serious decisions that have important present and future impacts on your life and on the lives of others.

Don't take short-cuts; don't hurry; don't over-reach; don't over estimate your own capability and experience.

"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take 0 and go to Las Vegas."
Paul Samuelson

Even though good experienced, professional advice and service costs money upfront, it will save you a whole lot more on the back-end of the investment. Five-hundred dollars spent upfront to structure a deal right may save you ,000 on a back-end.

Promissory Note Investing - Principles And Tips

Denver Estate Real

Promissory Notes For Building Wealth Gradually

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WEALTH BUILDING GRADUALLY

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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.

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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.

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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!

Promissory Notes For Building Wealth Gradually

Denver Estate Real