What Are Cash Flow Notes? - Finally, a Clear Answer

You may have seen the late night infomercials but are still asking the question, "What are cash flow notes?" The question is easily enough answered, but the other question and most important one you are asking is, can you make money with them? Of course you can! But like anything else, there is a learning curve and you need the necessary level of skill and commitment to be successful.

However, let's not get ahead of ourselves and first define a cash flow note. Basically, they are nothing more than an income stream for an investor or company that purchases them to add to their portfolio. If you have every owned a home then you understand what a note is and how they work. When bought your home, you signed a contract agreeing to pay for the home over a set period of time in monthly installments until the balance is paid in full. This contract is known within the industry as a note and you probably call it your house note when you discuss your mortgage with others.

In many cases, individuals rather than mortgage companies hold the note on a piece of property and the buyer pays these individuals each month. The mortgage holder has his money tied up in the property and will not see the entire balance owed him for years. Many times these individuals decide for differing reasons they do not want to wait for their money for years and choose to sell the contract in order to free up their cash.

There are private investors and financial firms that do nothing but buy notes from people who are willing to sell. Although they buy notes from individuals, they do not pay them the total value of the remaining term on the contract. They offer them a lump sum payment of cash at a discount. Usually around eighty percent of the remaining balance. The main reason for the discount is the private investor or financial firm is assuming all risk associated with holding the contract until the entire balance is paid over the term of the agreement. Debtor default is by far the largest underlying risk associated with buying the contract.

How can you make money with cash flow notes? By acting as a middleman or note broker that brings buyers and sellers together and collecting a commission on the transaction. Mortgage notes were used as an example for this article but there are many different kinds of notes that can be bought and sold. Learning how to find them is the key to success in the cash flow notes business.

Source by Doug Fisher