The Cash Flow Clarion

One of the most common questions we hear is "What exactly is a cash flow note?" By definition, a cash flow note is a written document that states a promise to pay. Included in this document are the terms of the agreement, which includes:

the amount of the loan
the interest rate
the amount and frequency of the payments
when the borrower must repay the principle (i.e. the due date), and
the penalties imposed if the borrower defaults on the loan or pays the loan back early.

A cash flow note may be secured by real property, such as a home. In this case, there is a security instrument, called a mortgage or trust deed, which pledges the property for payment of the debt should the borrower default on the note. Notes may also be secured by other types of properties, such as a mobile home, a boat, an airplane, or even an automobile. Business notes are usually secured by the assets owned by the business.

Cash flow notes can also be in the form of lottery winnings, structured settlements, inheritance notes (usually through an estate settlement or trust), and annuities. Accounts receivables are another commonly encountered cash flow note. This is money which is owed to a company by customers who purchased products or services on credit.

These are a few of the most commonly encountered types of cash flow notes. There are many others which are less commonly encountered (for example, sports contracts and royalty payments). All of these cash flow notes can be sold for cash.

What Is My Note Worth?

Another way of asking this question is "What type of discount will I have to take if I sell my note?" All notes are purchased at less than the remaining balance if the note is sold. The amount of the discount will depend on many factors.

Each note has a time factor involved, because the money is paid out over a long period of time. Because of the influence of inflation on the value of money, a dollar in hand today is worth more than a dollar promised 10 years from now. This "time value of money" affects the value of the note. The longer the payment term of the note, the more the note will be discounted.

The other group of factors that influence the value of a cash flow note are the risk factors inherent in the note itself. No one can accurately determine whether all of the payments on a given cash flow note will be made on time. However, there are a number of situations that make it more likely that a note will default or pay off on time. Individual risk factors will vary depending on the type of note involved. Real estate notes, for instance, are influenced by risk factors that are much different than those influencing a structured settlement. However, in general, the riskier the note is, the higher the possibility of default, and the lower the value of the note if it is sold.

Is there a standard discount on a note? Unfortunately, no. Each note is different and has to be evaluated on its individual merits and risk factors. You can compare the value of a cash flow note to the value of a car. In order to know what price you would pay for a car, you need to know what kind of car it is, what make and model, what year, how many miles, etc. Pricing a cash flow note is no different. It is important to know all the specific information about a note before its value can be accurately determined.


The Cash Flow Clarion
February 5, 2006
Cash Flow Notes Defined One of the most common questions we hear is "What exactly is a cash flow note?" By definition, a cash flow note is a written document that states a promise to pay. Included in this document are the terms of the agreement, which includes: the amount of the loan the interest rate the amount and frequency of the payments when the borrower must repay the principle (i.e. the due date), and the penalties imposed if the borrower defaults on the loan or pays the loan back early. A cash flow note may be secured by real property, such as a home. In this case, there is a security instrument, called a mortgage or trust deed, which pledges the property for payment of the debt should the borrower default on the note. Notes may also be secured by other types of properties, such as a mobile home, a boat, an airplane, or even an automobile. Business notes are usually secured by the assets owned by the business. Cash flow notes can also be in the form of lottery winnings, structured settlements, inheritance notes (usually through an estate settlement or trust), and annuities. Accounts receivables are another commonly encountered cash flow note. This is money which is owed to a company by customers who purchased products or services on credit. These are a few of the most commonly encountered types of cash flow notes. There are many others which are less commonly encountered (for example, sports contracts and royalty payments). All of these cash flow notes can be sold for cash. What Is My Note Worth? Another way of asking this question is "What type of discount will I have to take if I sell my note?" All notes are purchased at less than the remaining balance if the note is sold. The amount of the discount will depend on many factors. Each note has a time factor involved, because the money is paid out over a long period of time. Because of the influence of inflation on the value of money, a dollar in hand today is worth more than a dollar promised 10 years from now. This "time value of money" affects the value of the note. The longer the payment term of the note, the more the note will be discounted. The other group of factors that influence the value of a cash flow note are the risk factors inherent in the note itself. No one can accurately determine whether all of the payments on a given cash flow note will be made on time. However, there are a number of situations that make it more likely that a note will default or pay off on time. Individual risk factors will vary depending on the type of note involved. Real estate notes, for instance, are influenced by risk factors that are much different than those influencing a structured settlement. However, in general, the riskier the note is, the higher the possibility of default, and the lower the value of the note if it is sold. Is there a standard discount on a note? Unfortunately, no. Each note is different and has to be evaluated on its individual merits and risk factors. You can compare the value of a cash flow note to the value of a car. In order to know what price you would pay for a car, you need to know what kind of car it is, what make and model, what year, how many miles, etc. Pricing a cash flow note is no different. It is important to know all the specific information about a note before its value can be accurately determined.	In This Issue: Cash Flow Notes Defined What Is My Note Worth? Important Links: The Cash Flow Clarion Home First Class Cash Flow Handlers- Home page for First Class Cash Flow Handlers Note Submission Page- Submit your cash flow note on this page if you would like to sell your note FAQ's Page- Questions relating to First Class Cash Flow products and services Note Holders Page- Information and answers to questions frequently asked by note holders Realtors Page- Information for realtors explaining how owner financing can increase sales and commissions Real Estate Professionals Page- Dedicated to attorneys, CPA's, financial consultants, mortgage brokers, and any other professional whose clientele hold cash flow notes Products Offered- Information about specialized products such as "How To Sell Your Home Fast In Good Or Bad Markets" training course, the "Note Holders Manual", the "Cash For Paper" audio course, and the "Update On Real Estate Newsletter" In Next Issue: Simultaneous Closings Business Notes Contact Information: First Class Cash Flow Handlers www.firstclasscashflow.com loriehuston@firstclasscashflow.com (401)-258-7158