Cash Flow Notes
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Cash flow notes are financial agreements that bring a steady income to a person. If the owner of a property is holding the mortgage for a buyer who couldn't get financing on his own, that owner would be holding a cash flow note. If someone is a participator in a trust and is receiving or will be receiving monthly income, he is holding a cash flow note. Lottery winners, those who have an annuity and those with court awards paying out monthly or yearly, are all holders of these notes. There is a whole business dedicated to buying cash flow notes from people so that they can have a lump sum of money immediately (relatively speaking) rather than wait for years or decades for the entire amount.
Let's take the case of the man who tried for three years to sell his parent's house in a large Eastern city. Look, the place was not exactly the Ritz and five realtors tried and failed, so the man decided to sell to a couple who wouldn't have passed the bank's sniff test, but the owner liked them and really liked the idea of selling the place. So the guy is now holding the mortgage. Five hundred dollars a month of steady income for thirty years, but the guy's sixty eight with a bad heart, and the wife is begging for an African safari. So the man puts an ad in the paper that he is willing to sell cash flow notes. And soon the man has a prospective buyer.
When the two got together to talk turkey, the buyer set down the ground rules. His offer for the note would be based on the new owners' credit score, the value and condition of the house as well as its location. When all the facts were assembled, the notes buyer was willing to pay the man forty five percent of what the owner had originally asked for the house with a realtor. While it was a real disappointment, the man had an epiphany. Since the value of the dollar seemed to be dropping every year and inflation climbing, the realization came that in ten years the five hundred each month might be worth four hundred dollars and by the time the thirtieth year came, the five hundred could easily be worth a hundred dollars. Better to get money while it still had a value of five hundred in today's economy. The note was sold and the new mortgage owner was now paid by the couple each month.
A contract specifically laying out the amount of the loan to purchase an object, the interest rate, the amount and frequency of payments and any penalties for late payments or early payoff is a cash note. Airplanes, cars, boats and mobile homes are all ways that a cash note can be secured. And if the cash flow notes holder longs for credit card relief or a medical treatment or for any reason, there are investors ready to buy the note, but it will be at a tidy profit for them, not for the note holder. After telling us that the greatest commandment is to love God with all our heart, soul, mind and strength, Jesus added, "Thou shalt love thy neighbor as thyself. There is none other commandment greater than these." (Mark 12:31) Christian business people should approach each customer with this commandment in mind.
Some people don't want to sell entire cash flow notes because the security of having a monthly income is comforting, but the holders still need a quick cash infusion. For example, a man has sold a three hundred thousand dollar plane and is holding the note for it. The man runs into tax problems and needs forty thousand dollars to clear a lien on his house. The guy offers a buyer of notes the next sixteen monthly payments on the airplane in return for most of the money upfront to cover his liability. The investor agrees to a seventy cents on the dollar lump sum to the note holder for those sixteen months of monthly payments. The note holder gets the forty thousand, and the investor makes almost ten thousand dollars on the deal. Not a bad deal for both and the man get back to his monthly income in a year and five months.
Not everyone has an annuity, which can certainly be considered in the family of cash flow notes, but many people have life insurance policies that, because of a terminal illness, can be put on the market and bought by an investment business. Such a business transaction, called a viatical, could be considered the same as the purchase of cash flow notes. These types of sales get very low ratings from financial experts and the business is fraught with those looking to take advantage of someone in a very sad condition. The best advice is to try and get through this hard time without being battered by a viatical agreement. Here are some parting thoughts.
There is a sizable amount of people making a good living buying and selling cash flow notes. There are even infomercials offering courses on how to do the business just described. But hold on; do a lot of checking because there have been complaints about the way these advertised companies do business. And while the traditional financial world has had its grocery cart full of maggots, anytime business is done outside the traditional box, such as the buying and selling of these notes, the breeding ground for unethical practices is enhanced almost exponentially. We need to be wise as serpents and gentle as doves.
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