The cash flow industry is a booming business. It refers to the purchase and sale of income streams, i.e. notes.
What is a note?
A note, simply put, is a promise to pay. The note itself is a document that includes the face value of the note, interest rate, monthly payment, term of the note, and any other clauses agreed upon by the parties involved.
How is a real estate note created? Here are a few examples:
1. Samantha Seller owns a home free and clear and Bill Buyer is interested but cannot qualify for conventional financing. Samantha Seller then agrees to carry the financing. Samantha Seller becomes the bank and Bill Buyer’s monthly payments are sent to Samantha Seller based on the terms set in the note.
2. Sue Seller wants to sell her home and Brad Buyer can obtain conventional financing however he doesn’t have the funds to cover the down payment. Sue Seller can agree to carry a note for the balance of the down payment as a second mortgage. The buyer, therefore, makes monthly payments to the bank (first mortgage) and Sue Seller (second mortgage).
But let’s say that you’re ready for a vacation and darn it all, your money is wrapped up in the house you owner-financed to Bill Buyer. Here comes Nancy the Note Investor to the rescue! Nancy is interested in purchasing your mortgage; she asks you what you need the money for, how much you need, and how soon you need it. You and Nancy the Note Investor come to an agreement and you get to walk away with a lump sum of cash today instead of waiting the term of the note for your money. As for Nancy the Note Investor, she has purchased your note at a discount agreeable to you in order to make an acceptable return on her money.
But wait, there’s more! The cash flow industry is not limited to owner-financed mortgages… structured settlements, bankruptcy cash outs, viaticals, and even lottery winnings are viable cash flows that can be sold to investors and yes, there are people willing to buy them.