Money Card

One of the fast becoming popular investments now are the cash flow notes. These are I.O.U.s or promissory notes wherein an investor would buy from a lender the rights to collect from a third party.

This is usually in the form of monthly instalments either for a piece of real estate, a vehicle or equipment, a business loan of some sort, or even for a structured settlement of a lawsuit. The notes would be secured by real property in cases of real estate mortgages, cars or equipment in cases of auto loan, annuity loans in cases of structured settlements, and business assets in cases of business cash flow notes.

An investor will make money because he will only pay a percent of what is to be collected by the cash flow notes. For example if the notes are to collect a thousand a month for three years amounting to thirty six thousand, the investor may opt to purchase the notes for only twenty five thousand which would net him a profit of eleven thousand in a three year period. In essence what an investor does in cash flow notes is buying in lump sum a collectable at a discounted rate.

One danger in buying cash flow notes is if the third party from where one is to collect payments is a known credit risk. In this case if the investor is certain that despite the credit risk he will be able to collect the money, he may opt to buy the notes at an even lower cost due to the risk involved. In other words the investor is willing to assume the risk of collecting from the third party in consideration of a higher net profit at the end of the payment term.

Cash flow notes can even be treated as a commodity wherein an investor would buy cash flow notes and sell them later on if he sees that the value of those notes have gone higher. An investor doesn’t have to wait to collect the termed payment themselves if he is able to sell them at a lump sum to another investor and already netting a profit from the sale thereof. This way an investor can re invest his money on other cash flow notes that can give him higher profit.