Let's start first by defining the term "cash flow note". A cash flow note is a written document that states a promise to pay, and the terms which include the amount, the interest rate and the length of time.
A cash flow note may be a mortgage, a trust deed, a deed of trust, a business note, a court award (such as a structured settlement), lottery winnings, annuities, etc. Generally, a cash flow note provides a pre-determined payment at regular intervals (often monthly, quarterly or annually).
A note holder, of course, is the person who holds a cash flow note and receives those payments.
As a note holder, you may not be aware that you can sell that note for cash. However, selling your cash flow note is a great way to raise a large sum of money quickly.
We are frequently asked why would I want to sell my cash flow note. The fact is there may be many reasons to sell your note. It's possible that you didn't even want the note to begin with. You may have settled for it in order to sell a property, or been awarded a settlement in court, but would have preferred a lump sum payment instead. By selling your cash flow note, you can receive that lump sum payment and be done with those small monthly payments. You'll have your money up-front and won't have to wait years to collect it.
Another reason for selling your cash flow note may be to raise money to cover the cost of a financial obligation, such as paying off credit card debts or medical bills. You may need cash to finance a college education or a retirement. You may simply want to purchase a new home or car, or even a new business. You might decide you want to take that dream vacation you never thought that you could afford. You might simply want to invest your money in a more profitable endeavor. Whatever the reason, as a note holder, you have the right to sell your note at any time you wish.
You're probably wondering what your note is worth. The truth is, you probably won't get the full face value of the note. Cash flow notes are almost always sold at a discount. There are many reasons for this.
First of all, you'll be receiving your cash now, but the investor you sell your note to has to wait several years to collect all of the funds he/she purchased from you. It's a fairly well known fact that money now is worth more than money in the future. It's the same principle that makes a home that was purchased 30 years ago for $55,000 worth $250,000 now. Do you remember what you paid for a gallon of milk or a loaf of bread 10 years ago. What do you pay for the same item now? It's more, right? That's one of the reasons your note will likely be sold at a discount. The money is worth more to you today than it will be several years from now.
The other reason that notes are sold at a discount is the fact that each note has risk factors inherent in the note itself. There is always the possibility that the note could default and the person holding the note could get stuck. No investor wants to deal with foreclosure. Despite popular opinion that foreclosure is profitable, more often than not, foreclosure is an expensive process and the property may need extensive repairs before it can be sold. Under these circumstances, the note holder could lose quite a bit of money on the note.
Is there a standard discount on a note? No, even though it would make it much easier to price a note, it is impossible to apply a standard discount factor. Each note is different and has to be evaluated on the basis of it's own strengths and weaknesses. It's like asking what it costs to buy a house. How big is the house, where is it located, how many bedrooms, how many baths, is there a garage attached, how big is the yard, is there a swimming pool, hot tub, whirlpool bath, and on and on and on...You get the picture.
So what factors determine what a note is worth? That will vary depending on the type of note. The factors to consider in a real estate note are things like the term of the note, the interest rate, the payor's credit rating, the value of the property securing the note, the amount of equity in the property, the amount of the down-payment made, the payment history, and the seasoning on the note (in other words, how many payments have been made).
Commercial notes deal with these issues, plus factors such as the income and the expenses of the property.
Business notes will deal with the term of the note, the interest rate, the value of securing assets, the payor's credit rating, the value of the business, the amount of equity, the payment history, the seasoning, the experience of the payor, plus several other factors.
Each note type has it's own parameters, but it basically comes down to how much risk is involved with the note and how long will it take to collect all the money from the note.
First Class Cash Flow Handlers will purchase any type of cash flow note.
A typical note sale takes approximately 4-6 weeks to complete, assuming there are no complications with the note and all documents are supplied in a timely fashion.
We offer a number of different plans to meet the needs of any note holder. You may sell all or part of your note. We will work with you to determine which plan is better suited to meet your individual needs. Click here to
submit a note or call us at (401)-258-7158.
Another question we hear frequently is whether a note holder should sell their note or take out a loan instead. You can certainly take out a loan to cover any financial needs you may have, and may even be able to use your note as collateral. However, there are some disadvantages to this also. Firstly, it increases your debt load, while decreasing your net worth. Both of these factors combine to decrease your credit worthiness and credit score. By selling your existing note, rather than taking on additional financing, you increase your net worth without adding any additional debt load. In the event that you need to pursue financing in the future, this will increase your overall credit score and credit worthiness.
