Cash Flow Notes For Sale – Are They a Safe Investment?

Cash flow notes for sale encompass a variety of opportunities for both buyers and sellers. Currently, more than 60 types of cash flow notes exist. The most common include real estate notes, land contracts, business notes, structured settlements, and seller carry back notes.

Cash flow notes used to document real estate transactions are secured by tangible property. Nearly any type of property can be used as collateral including single and multi-dwelling properties, pre-fabricated or mobile homes, and condominiums.   Investing in real estate notes can be somewhat risky. Experts recommend consulting with a real estate attorney to ensure proper legal documents are executed. Considering today’s recessed economy and housing crisis, careful consideration should be given when investing in real estate notes.  

On the flip side, keep in mind that real estate has always rebounded from previous economic disturbances. Investors willing to wait it out could potentially yield a hefty return on their investment.   Business notes are another popular choice amongst investors. The three primary cash flow notes in the business sector include Factoring, Purchase Order Funding and Seller Carry Back Financing. Each uses business assets as collateral for funding.  

With Factoring, account receivables owed to the business are used to secure the note. Receivables are sold to a funding source, known as the ‘Factor’. The Factor can be a private investor, group of investors, bank or other lending institution.   Purchase order funding uses the same principals as Factoring. The only difference is upcoming purchase orders are used as collateral.   Seller carry back financing is quickly moving to the forefront of cash flow notes for sale. Seller carry back can be used to fund real estate or business transactions. With the current credit crunch, more investors, business owners and property owners are turning to owner financing.   Seller carry back goes by many names including “owner will carry” and “owner financing”.

In essence the owner carries all or part of the financing to close the deal. Some owners finance 20-percent of the purchase price, while others will finance 100-percent of the deal.   Seller carry back notes can be sold to investors. For instance, Sam Smith owns a business valued at $1 million. He sells the business to Joe Jones and carries back 50-percent of the note, or $500,000. Sam Smith can then sell the note to a private investor and assign payment rights over for the entire note, or part of it. Chances are Sam won’t receive 100-percent of the note value. However, he will have access to a lump sum of cash instead of waiting years for repayment.   Real estate investors might offer Sam $750,000 toward his $1 million cash flow note. The investors now carry the risk and must collect the payments. They also must wait for repayment of the note unless they sell it to another investor; which is unlikely. In the end, the investors will earn a profit of $250,000, plus any new property value.  

Many investors appreciate the value of structured settlement cash flow notes. Structured settlements are used to compensate individuals who have been injured due to negligence, as well as lottery jackpot winners.   Structured settlements are paid out through annuity payments backed by life insurance companies. Annuitants (individuals who receive payments) can sell all or part of their structured settlement to an investor. In order to sell annuity payments, Annuitants must receive authorization from the court.

A true need to sell the structured settlement must be proven to the judge. Structured settlements are generally arranged to provide individuals with consistent cash flow to pay for medical expenses and healthcare. Judges usually will not approve the sale of structured settlements if they feel it will cause financial harm to the Annuitant.   Buying and selling cash flow notes can be beneficial for both parties. However, it is imperative to work with credible professionals and obtain proper legal documentation. Doing so will help to ensure profitable investment opportunities.