Joann Pace: November 2017

Sunday, November 26, 2017

Options Income Strategies For Monthly Cash Flow

Trading options is a risky business. You have to learn the basics, take note of stock movements and rely on your instincts. While these ideas may prevent you from buying stock options in the market, it is still best to gauge whether you can survive or have the guts for this type of trading. Options income strategies for monthly cash flow abound in the net these days. Not only are you facing a number of online tutorials or methods, you are also challenged by media speculations and tips from pundits.

Business enthusiasts such as the media and brokerage firms, tend to downplay the idea of investing if not trading options as a way of generating money. On the other hand, a rise in the number of market players in the past years, seem to negate the negatives as well. In fact, the year volume of contracts, as well as the number of investors, as shown in annual statistics proves criticisms wrongs. Meaning, many traders and investors still gamble on options income strategies for monthly cash flow

True enough, options trading (specifically, buying ‘call options’) offer prospects with huge benefits and rewards. Imagine possible increments of 100, 200 even 500 percent to possible monthly income. However, trading options may result in losses and failures at hand. Meaning, there is also a big possibility of losing your entire savings in an instant. So, how can we avoid this trap? By understanding the following strategies and principles:

Timing is everything. Remember that stock options are wasting assets and are short-term investments. You have to decide when to make the purchase, what type of stock and when to invest. Time and options are basically foes, in the sense that you have to rely on market and price movements within a shorter period. You may remedy this problem by means of acquiring LEAPS (Long-term Equity Anticipation Securities). However, you have to pay for higher premiums.

Think hard before…

Saturday, November 25, 2017

How to Make Money Investing in 401K Plans in 2015-2016 and Beyond

Torie, like millions of other people, knows that she needs to make money investing in 401k plans in 2015-2106 and beyond (she has a couple) in order to retire comfortably. What she also needs to know: 401k asset allocation, how to pick and manage her best 401k investment options, and the outlook for 2015 and 2016. Let’s take a look at how she and you can make money in 2015, 2016 and beyond (or at least make the best of it) if you’re in the same boat.

Although it’s been easy to make money investing in 401k plans in recent years, this is not always the case. The first thing Torie and you need to do is to set a goal (Torie’s is to retire in about the year 2040). Second, be honest about your personal risk tolerance. Torie’s is “moderate” – but definitely not aggressive! Third, review your present 401k asset allocation to determine whether the investment options you hold are in line with your risk tolerance. Are you in the best 401k investment options, and in the right proportion?

Finally, you need to understand that 2015 and 2016 could be a difficult time to make money investing in 401k plans. The reason: weak economic forecasts make yesteryear’s best 401k investment options vulnerable to losses. Stocks are pricey and so are bonds. Assuming your risk profile is similar to Torie’s (she would like to make money but wants to avoid heavy losses) what can you do now to stay on track, make money, and avoid heavy losses if 2015 and beyond turns ugly? We’ll use Torie as our example.

A number of years ago Torie decided that she wanted to make money investing in 401k plans, but wanted to keep things simple. She had changed jobs once and was planning on another change in the future. With both employers she had set her plan up with 50% going to a safe stable account and 50% to a Target 2040 fund. She was busy and pretty much ignored her statements over the years. After all, her goal was to make money investing, and she could see at a glance…

Promissory Note Valuation Mistake: Fair Market Value Vs. Historical Cost

Overpaying Taxes and Fees Because of Valuation Confusion

Fair Market Value vs. Historical Cost

How you value your investments (promissory notes included) impacts the taxes and fees you pay. In the worlds of finance and accounting, there is a debate about the best methodology for asset valuation. Being a promissory note investor, decide to value at Fair Market Value, not at historical cost.

Historical cost is the price paid when the note was acquired. Fair Market Value is the price at which the promissory note would change hands between a willing buyer and seller in an arms-length transaction today. It’s the cash amount you could receive today if you had to find a buyer and sell.

Fair Market Value and Historical Cost Rarely are the Same

The two definitions are completely different and create two very different results. As an example consider publicly traded closed-end funds. The day-to-day trading price of Fair Market Value (FMV) is rarely the same as cost. Publically traded funds trade at prices above, below, and at historical cost. Your promissory note has two distinct values depending on which definition is applied.

A Promissory Notes Fair Market Values are Usually Less than its Cost

Because private notes are relatively illiquid–they do not trade on a public market-they have to be sold individually, one note to one buyer. Because of the extra time and cost to sell a note, its market value is discounted. Notes can be wonderful investments, pay an above-market yield, and yet have a legitimate reason to be discounted if they had to be sold. As an investor, the yield is vital; as a tax payer or a fee payer, the discounted value is vital.

Note investors normally are long-term holders, not frequent traders. Selling is not part of their agenda; holding for income is the usual goal. Investing for the long-term and valuing the investment based on the short-term (FMV) for taxation is a good business practice.

Using the Wrong Value Costs…

Read More…. by Lawrence Tepper

Finding Real Estate Deals Just Got Fast & Easy With this New Search Engine Built for Real Estate Investors & Wholesalers

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Promissory Note Frauds and Tricks

I have been actively engaged in the promissory note business for over 40 years. My and my wife’s self-directed IRA accounts have been invested in notes for the same length of time. My note investments have been the foundation of my estate building. Because I believe that promissory notes can be an excellent investment vehicle for the average investor, I try will try explain what they are and how they work. But, I will also point out that notes can be misused and abused by dishonest people and by ignorant people. This article is the first of several articles in which I will attempt to inform the average investor about the benefits and warn the average investor about the detriments of investing in notes. Obviously, there is no perfect investment.

Just as cars do not injure and kill people (bad drivers do), promissory notes do not trick and harm people (dishonest or ignorant sellers of promissory notes do).

What Promissory Notes Are: Generally, promissory notes are a form of debt similar to a loan. Companies and individuals issue these notes to finance a wide variety of endeavors. Bona fide notes are an important means by which companies and individuals raise capital. However, not all notes are legitimate and investors must be mindful of potentially tricks, deception, and exaggerations. Not all notes are created equal.

Promissory Notes Often Are Securities: In many instances, these investments are promoted as not involving the sale of securities, either by the issuers of the notes or by salespersons. The Securities Act of 1933 and the Securities Exchange Act of 1934, however, include “any note” in the definition of a security. From these definitions, a legal presumption has been developed that a note is considered to be a security, although this presumption may be overcome if, based on all facts and circumstances, the instrument is deemed to be a commercial-type loan. In many cases, notes are construed to be securities. In some…

Read More…. by Lawrence Tepper

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Seven Promissory Note Myths and Seven Myth Busters

Myth Defined: A myth is an invented story, idea, concept, or legend that concerns some idea or hero without a basis in fact. There are numerous promissory myths. Here are the main myths.

Myth #1: The value of a promissory note is clear and obvious-it is not debatable.

Myth Buster: A promissory note can have many values. The term “value” means different things to different people. The meaning of “value” is different to when used by the Internal Revenue Service, by an art auction company, by an antique dealer, by a real estate appraiser, or by an investor.

There are at least 15 meanings to “value”: Fair Value, Fair Market Value, Market Value, Book Value, Cost Value, Discounted Cash Flow Value, Quick Sale Value, Liquidation Value, Speculative Value, Intrinsic Value, Investment Value, Personal Value/Owner’s Value, Insider/Family Value, Wholesale Value, and Retail Value.

Myth #2: The cash value of a $50,000 promissory note is $50,000-just like a bank CD.

Myth Buster: Promissory notes are not like cash or bank CDs. They are mere promises to repay cash, not actual cash. There is always uncertainty about debt repayment. Consequently, their value is discounted because they lack marketability, liquidity, enforceability, adequate collateral security, proper documentation, and proper interest rate.

Myth #3: Investing in a promissory note is low-risk investing-just like buying a bank CD.

Myth Buster: Every investment has some degree of risk. Because of the reasons mentioned in #2 above, notes may have a higher risk factor. To compensate the investor for this added risk, their yields are higher than safer investments. This concept is the “Risk-Return Trade-Off”.

Myth #4: Doing a foreclosure to collect on a defaulted promissory note is quick, easy, and inexpensive.

Myth Buster: There are always significant cash expenses and costs related to the foreclosure and repossession of a property. Attorney fees, eviction fees, property insurance premiums,…

Read More…. by Lawrence Tepper

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What Is a Convertible Promissory Note? What Is Convertible Debt?

What are the Risks and Rewards of Investing in Convertible Promissory Notes?

What is a basic promissory note?
A promissory note is a written promise to repay borrowed money within a specified time, using periodic payments, or with one final payment, with interest at a specified rate. In the world of finance, this document is called the “note”. It is often used to finance an existing business or finance a start-up business.

What is a convertible note?

A convertible promissory note is a document that offers an additional option to the holder (lender); rather than being repaid the stated principal and interest, the holder can convert part of the debt (loan) into equity (ownership) in a business venture. Convertible notes (aka convertible debt or convertible loans) are a financing mechanism whereby a company raises debt capital from investors by offering them the ability to convert all or part of the debt investment into the business’s equity at a later date, at a fixed conversion ratio . The conversion terms of each business transaction will vary. Here is a typical scenario: a company raises $ 1 million in convertible debt, which has the right to convert to equity at a 25% discount to the valuation of the next financing round, or to the appraised valuation of the business.

What are the risks and benefits of investing in convertible promissory notes?

Convertible notes are the rage for start-up businesses these days. Investing in them is not a conservative investment; they are a high risk / high reward specific investment. Funds invested in convertible debt should be “surplus money”, “gambling money”, not retirement money or put-the-kids-through-college money. Convertible debt investing is not for the cautious, nervous or new investor.

From the investor’s standpoint, they are providing loans to a new or small business at a very risky stage in a company’s life cycle. The notice that they have the security…

Read More…. by Lawrence Tepper

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Promissory Note Structuring – Part One

How to structure your seller-carry note for maximum value.

Every flaw in your note will come back to haunt you when you try to sell it!

I have been actively engaged in the promissory note business for over 45 years. During that time I have bought, sold, exchanged, brokenered, appraised, and structured hundreds of notes. The lessons that I have learned, through my own mistakes and through the mistakes of others are numerous. I want to help you avoid “learning the hard way”!

If I were to expand and explain every lesson that I have learned the hard way, it would probably amount to writing a book-or two. I will give it to you here “short and sweet”.

In outline form, I will share with you key concepts that will make your seller-carry loan more valuable, more salable, and more collectable. The following guidelines represent over 45 years learning the hard way, and I have the scar tissue to prove it!

Six critical elements needed to structure the note for maximum market value:

1. Get the highest interest rate on the note that you can

2. Get the largest down payment on the transaction that you can

a. Get additional collateral security-other real estate, co-signer, etc.

3. Get an independent third-party appraisal of the collateral assets before the closing

4. Get an agreement from the borrower that you can have permission to get independent third-party appraisals of the collateral assets after the closing, if and when you need them

5. Get all of the borrower’s personal and business credit and financial information before the closing

6. Get an agreement from the borrower to provide updated credit and financial information after the closing, annually, or when you need them

Selling your Note

If you ever sell a private party / seller-carry loan, even if it is paying perfectly, you will be asked for all, or most of the above items. The more of these items you have and the more complete each item is, the…

Read More…. by Lawrence Tepper

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Starting Out on Your Own With a Cash Flow Note Listing

No matter if you are considering an online business or analyzing a cash flow note listing, there are several considerations to think about before you start working for yourself. Are you sure that this is what you want to do? Would you quit your full-time job to be successful at it? Unless you have all the information you need to make a decision like this, it is essential to take some time to look at all your options.

Before diving into the cash flow note business, it is a good idea to learn more about the actual process to save yourself from major mishaps that can easily avoid. The best thing to do is conduct some individual research while you to talk to someone experienced at dealing with cash flow note listings. A mentor can help give you useful advice while answering your questions. Anyone that may be hesitant about cash flow note listing should seek out information from someone successful in the business already.

Once you have made a decision to move forward with cash flow note listing, start planning and training. Even if you have to pay to get training materials, you will benefit from professional information in the long run.

A great place to obtain information about a cash flow note listing is Russ Dalbey’s Winning in the Cash Flow Business website. Russ Dalbey has created a proven cash flow note winning system and the website can lead you to more information and materials that will help you.

Real Estate Notes and Land Contracts Offer Positive Cash Flow to Investors

Real estate notes and land contracts are used to document the sale of houses, commercial properties and vacant land. Other common names for these contacts include real estate receivables and seller carry back trust deeds. Seller carry back returns to a type of private financing where the seller acts as a lender. Realty note holders can elect to provide full or partial funding to expedite the sale.

Although real estate notes and land contracts can be executed by the parties involved, it is best to retain legal counsel to ensure documents are legally-binding. At minimum, have a lawyer review contracts and make sure they include legalese which protects both buyer and seller in the event of default.

Note receivables are valuable assets that can be sold to private investors. When drafting contracts is it important to be aware of strategies which can maximize cash flow and return on investment.

Sellers who provide private financing to help buyers purchase the property or obtain financing for the balance of the sale price should obtain a minimum 10-percent down payment for residential properties, and 20 to 30-percent for commercial properties. In most cases, obtaining higher down payments can potentially minimize the risks because buyers do not want to lose their investment money.

Seller carry back financing typically extends for two to five years and up to seven years on commercial properties. It is best to keep seller carry back terms as short as possible. At the end of the term, buyers must obtain funding through a conventional mortgage lender.

Oftentimes, buyers who require seller carry back financing are credit-challenged, so it is critical to obtain a current credit report. Individuals with low FICO scores are not always high risk, but sellers must protect realty assets through iron-clad real estate notes and land contracts.

When entering into seller carry back mortgages it is best to work with buyers…

Medium Term Notes – Investing in Short Term Medium Notes

There are a wide variety of different investment vehicles out there that can benefit individual investors and companies alike. Choosing the right investment vehicle means doing some research and getting to know your options, deciding which options are best going to meet your needs, and then investing intelligently in those investment vehicles to improve your portfolio or financial future. Investing wisely and with research and due diligence is essential to your success in the marketplace. One of the options that are available to you is medium term notes, so make sure that you consider this option as part of your investment portfolio.

A medium term note, which is also commonly referred to as an MTN, is a note that typically matures within a period of five years to ten years, although other maturities are also available. MTN are also corporate notes that are continuously offered by companies to different investments by way of a dealer. These investors can typically choose between several different maturities options, usually ranging from as few as nine months to as many as 30 years. Although these notes are available in the 30-year maturities, this is not a common option, as shorter term notes are more common.

When investors know that a note is a MTN, this gives them a basic idea of what the security is going to be when they are comparing the price of that note to other types of fixed income securities. When all else is equal, then the corporate rate on the MTN is typically going to be higher in comparison than the coupon rates that are achieved with shorter term ones. Short term medium notes are the MTN that have the shortest terms, such as nine month long notes rather than the 30 year notes.

This is a type of debt program that companies are generally going to want to use so that they will be able to have consistent cash flows coming in to the business, often on a weekly basis, from debt issuance. These…

Promissory Note or Contract – What’s the Difference?

Promissory Notes are Different from Contracts

Avoid Confusion-Understand the Difference

Contracts

A contract requires two parties to agree to its terms. The parties must exchange “consideration” (something of value) that binds both of them to perform a duty. Example: I pay you rent in exchange for you making an apartment available to me for living space. A contract needs to have bilateral or mutual consideration. This means both parties have to give something of value to each other in order for a contract to be valid.

Promissory Notes

Promissory notes are a special type of legal document. They are a created by statute (e.g., The Uniform Commercial Code). A note contains a promise to pay a fixed amount of money at a set time. There is no mutual or bilateral exchange of “consideration”. Promissory notes can work in conjunction with other documentation such as mortgages and security agreements which detail additional aspects of the underlying transaction. Example: When used in a real estate transaction, the promissory note covers the promise to repay the amount owed, interest, and maturity date – while the deed of trust or mortgage outlines the other responsibilities of the parties involved more precisely.

Key Terms

Two key legal terms used in the note are “promissor” and “promisee”. A promissor is a person who makes a promise to repay the money; the promisee is the person to whom the promise is made. The promisee is entitled to receive payment from the promissory.

Some notes are drafted that call the individual who promises to pay is the “maker or the borrower”, and the person to whom payment is promised is called the “payee or the holder or the lender”.

Because of these multiple identity options be certain to understand exactly who is to do what when investing in or transacting a note situation.

Promissory Note Basics

Promissory notes are negotiable instruments like checks: a promise by one person (or company) to pay another. They are…

Read More…. by Lawrence Tepper

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Investing $20 Dollars – Can You Double It In a Week?

$20 dollars may not sound like much but it could potentially become one million dollars in a very short amount of time. In the world of investment and compounding, even a humble $20 bill can be a seed capital account that will grow to gigantic proportions. When your money earns interest upon interest, you can see some really magical things starting to happen.

Speed of return is just as important. Lets take our $20 bill for example, can you think of ways to turn that $20 into $40? If you could double your result every time for 17 times, you would have over $1.3 million dollars by the time you are at your 17th transaction.

Have you thought about how to double your $20 dollars? It would actually be remarkably easy and I don’t think there would be a reader considering this, that wouldn’t have a few ideas about how to double a $20 dollar note into $40. But how would you double $650,000 which is the 16th transaction or step?

If you were able to double $20 by investing it. In other words, buying something for $20 and getting back $40 when you re-sell it, then you can do it at higher levels too. The main difference will be the speed of your returns. To double $20 would not only be easy, but it wouldn’t take long. Maybe you could even find an opportunity and sell it within a day. If you had to double $650,000 you would need to find something like a house or a business and that takes time to buy and time to sell, but you could still do it. Also, you couldn’t possibly make 100% in a single transaction in real estate, maybe at a stretch you could do 3 by 30% transactions. But it is do-able.

A Promissory Note Catastrophe

The story:

A real estate developer in 2005 optioned five older, contiguous beach front hotels in Florida. He planned to redevelop the combined sites into one large, magnificent luxury hotel. In late 2007 he obtained a $ 35 million loan from an east coast Real Estate Investment Trust (REIT) that was secured by a first position mortgage on the five older hotels and their land. He used the borrowed funds to purchase the five hotels. A prominent Florida attorney closed the loan and purchase transaction. During 2007 and 2008 the developer worked on obtaining architectural drawings, land use permits, building permits, and engaging contractors.

The sequence of events:

By mid 2008, the real estate market nationally, and in Florida particularly, had crashed; property values had declined approximately 35% and were continuing to drop. Bank lending had been discharged-up. A hurricane had stuck the Florida coast and destroyed the five old frame hotels. The, to add to the misery, the developer declared bankruptcy due to the failure of the subject project and other projects in his portfolio.

The REIT lender was holding a $ 35 million promissory note that was in default, the borrower had declared bankruptcy, and the hurricane had destroyed the hotels on the collateral property. As the lender was preparing to start foreclosure proceedings it discovered the Florida attorney that closed the loan and purchase transaction had failed to obtain an assignment of the hazard insurance policies on the five hotels. The ownership of the wind damage insurance claim of $ 20 million was in dispute. An errors and omissions insurance claim against the closing law firm’s carrier issued.

The Promissory Note Questions:

The REIT needed to determine its damages. The question was what was the pre-2008 Fair Market Value of the $ 35 million note, and what is the post-2008 FMV? What amount of value has the promissory note lost? How do…

Read More…. by Lawrence Tepper

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Three Rookie Mistakes of Bulk REO Investing

Mistake 1

Not Recognizing “Daisy Chains”

Unfortunately in this business you will encounter a collection of never ending daisy chains of “brokers” and self proclaimed “mandates” consistently misrepresenting a product that they do not control nor have the proper authorization to advertise or sell.

Only through training and experience will you be able to recognize these clowns of the business within 2 minutes of being on the phone with them. You will learn early on that it is not about finding the deals, but learning how to spot these clowns and get off the call as fast as possible.

These people who obviously have nothing else better to do will be your downfall if you do not learn early how to get pass them and on to the real product source, which is the most difficult point to locate.

Mistake 2

Not Performing Due Diligence

Any time you are investing you need to run a thorough due diligence to make sure the numbers make sense.

This is the main cause of failed stories about investing in this industry. The slightest mistake can empty your pockets in the blink of an eye; This is why mentorship and training prior to investing is crucial in this business.

Hire local Realtors to run your BPO (broker price opinion) and establish real market value with updated figures for today’s Real Estate market.

A lot of newly formed hedge funds find themselves guilty of this cruelious mistake. They let ruthless sharks that have been around for a while talk them into buying a tape which is either full of garbage assets or over price.

Mistake 3

Not “Cherry Picking”

This has to do more with being affiliated with a real source or company that will give you access to their product and then cherry pick from their lists or properties.

Instead of waiting for that “home run” of 100 properties, you can work on those “one base hits” by cherry picking one property at time from a tape. Rehabing and selling these one at time…

Cash Flow Notes Investing – Effective Marketing Can Make You Rich

Cash flow notes can actually make you wealthy if you work such a business effectively. It is not something that will make you rich quick or easy. It is NOT as easy as 1, 2, 3 necessarily but if you really put in all the effort to learn the business and apply what you learn properly then you can make good money with it.

There are several ways to go about making money in the promissory notes industry. Perhaps one of the most common is note brokering or notes selling. This approach is one where you would act as the go between to help a note holder find a buyer for their note and receive a commission for introducing the two. This is what most beginners in the industry try to do as it allows for a good profit with a small part in the transaction or so it would seem. There is actually a lot of work and effort that needs to be done as a note broker in order to find the note holder who is ready to sell.

One of the most valuable things you can do when marketing to note holders is to use the same colors and sometimes a consistent logo that they will become familiar with. You should never assume that you will be the only person ever marketing to these individuals. They will be contacted by many individuals and you must make your pieces stand out. You must make sure that every time you contact them they recognize something and look forward to your communication.

Begin to build your list for effective marketing today. Learn tips that will help you be effective at marketing your note business.

Buying Non-Performing Notes is Another One of the Real Estate Investing Secrets

Here is another of the real estate investing secrets for you; it is possible to earn higher return on investment income from buying non-performing notes than through other, more traditional methods such as junk bonds. If you put your money into a bank’s non-performing notes, your investment is secured by the property in which you’re investing.

For those who are new to this investment strategy, the art of buying non-performing notes is actually the study of and purchase of defaulted loans. There is a lot of risk to the process, so beware of any note seller who tells you their offering is a sure thing. But when you find the right notes and do your homework, the money can make it all worthwhile.

There are sub-performing notes, which are generally established for loans up to sixty days delinquent. Re-performing notes reference those that were delinquent but are re-paying, or that have delinquent repeatedly. Non-performing notes generally refer to loans that are ninety days or more delinquent.

Just like any other type of investment, you’ve got to know what you are putting your money into. You can study the neighborhood where the real estate sits. Attend zoning commission meetings to learn what developments are expected to take place in the area. Review the loan holder’s track record from prior to his current situation to determine whether this is someone who will convert the notes. You can build up equity without the hassle of being a homeowner or a landlord if you choose your properties carefully.

Learning how to find these notes is your important first step in the process of this real estate investing secrets process. Typically you do not just walk into a bank and ask if they have any non-performing notes you can buy. You can phone the headquarters of your area’s bank and ask for the director of Secondary Marketing but unless you know what you are doing you will likely run into a brick wall. It is better…

The Best Kept Secret in Real Estate Investing – Note Buying

One of the best kept secrets in real estate investing is clearly the practice of note buying. While purchasing notes, otherwise known as home mortgages, may seem like a complained process, it really isn’t once you take the time to understand how it works. And, the best part is that you can set yourself up to be a note broker and make money simply for brokering the sale of a note from one person to another without ever having to tap into your own savings and investments to do so.

What is a Note?

A note is simply a mortgage loan which is secured by a piece of property. A note can represent a first mortgage, a second mortgage, a land contract, or even a contract for sale.

Why are Notes Sold?

Have you ever borrowed money on a home, in the form of a mortgage? If so, then you have been the borrower on a note. Generally, if you borrow from a bank or lender you are soon informed that your mortgage note is now held by another lender. So, while your payments are the same, and the terms of the contract is the same, you now send your mortgage payments to another lender instead of the one you originally borrowed from. When this happens your lender has sold your note.

Suppose for a moment that you take out a mortgage with Bank A for $100,000. That bank processes your mortgage and you start making your payments on it. Soon you are told that Bank B now holds your note and you should start making your payments to them. What has happened is that Bank A loaned you $100,000 to be repaid over 30 years. Bank B stepped in and paid Bank A $80,000 to purchase your note today and have the rights to collect your payments. So, Bank A takes the $80,000 today and then Bank B in exchange collects your payments over the life of the rest of your loan. This gives Bank A another $80,000 to loan to other people right away rather than wait for your monthly payments to come in to them.

Private Mortgage Investor Notes

In addition to the big banks making…

Self-Directed IRA Investing – Tax Deferred or Tax Free

Tax deferred investing is great – tax free investing is greater!

In this article we will show you the amazing impact of compound interest.

Self-Directed IRA Account

A self-directed “IRA Account” is an individual retirement account that provides tax advantages for retirement savings. The self-directed “IRA” account is administered by a “custodian” or “administrator” who does not act as an investment advisor. The account owner makes all investment decisions and is completely responsible for the outcomes of the investments. This is an important fact.

The two main types of self-directed IRAs that we will discuss here are the “Traditional IRA” and the “Roth IRA.” Both offer tax-free growth. Their individual rules, regulations and tax advantages are detailed and specific. Those legal rules and regulations are not a subject of this article.

The purpose of this article is to explain and focus on the long-term financial benefits that result from tax deferred and tax fee investing. Additionally, one particular type of investment vehicle will be used to demonstrate these benefits-the Promissory Note.

The Benefit of Using a Promissory Note to Generate Cash-Flow

The Promissory Note is ideally suited for use in a high cash-flow, tax deferred, or tax free investing situation. If properly structured, the Promissory Note provides consistent monthly cash income that can be compounded over many years. The compounding effect of money over time produces excellent long-term results.

Tax Deferred or Tax Free Compounding Interest

As an example let’s assume the following:

I.$50,000.00 promissory note, payable monthly, interest only, at 7.0% annual interest, balloon balance of $50,000.00 due after 84 months-7 years.

A taxable account at a 30.0% Income Tax Rate: $291.67 monthly interest income X 12 months = $3,500.00 annually, less Income Tax of $1,050.00 =$2,450.00 available to reinvest annually at 7.0%.
$2,450.0 invested annually for the next six years (six…

Read More…. by Lawrence Tepper

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Why Should You Invest?

Investing has become increasingly important to many people, as the future of social security benefits becomes unknown. In some countries social security is actually non-existent!

Everyone wants to ensure a secure future, and they know that if they are depending on Social Security benefits, and pension or retirement plans, they may be in for a rude awakening when they no longer have the ability to earn a steady income. Investing is the answer to the unknowns of the future.

Investing is also a way of attaining the things that you want, such as a new home, a new car, college education for your children, or expensive holidays abroad. The type of financial goal you have will determine what type of investing you do.

If you want or need to make a lot of money fast, you would be more interested in short term investments which carry higher risks, which will give you a larger return in a shorter amount of time. If you are saving for something in the far off future, such as retirement, a college education for your new born baby, you would want to make a longer term investment which is safer and grows over a longer period of time.

The overall purpose in investing is to create wealth and security, over a period of time. It is important to remember that you will not always be able to earn an income … you will ever want to retire.

Having observed the reason why you should invest. You have to determine the category of Investor to which you belong then seek information and details of various short and long term investment which you can involve in to yield the desired returns.

The Way to Invest in Mutual Funds

Mutual funds investing is just one of many ways you can make your money grow. However, if the investor just goes into it quickly without sufficient knowledge, he may just bail out when there is a drastic decrease in the price of the fund. Money is at stake here. My advice is to know what you are investing before you go deeper into it.

Firstly, what are mutual funds? When you invest in a mutual fund, an investment company will pool your money together with the money of other investors and invest it in bonds, securities and stocks which fit the profile of the fund invested.

In the following paragraphs, I’ll explain how best to allocate your money for the funds, manage your portfolio of funds, as well as a good amount of time to keep the funds. In addition, I’ll add on other tips of investing in mutual funds.

There are many ways of investing in funds. One of the recommended ways is to invest into a diversified portfolio of stocks. This is done well by dollar-cost averaging (DCA). An equal amount of money is put aside for investment on a regular basis, into a fixed portfolio. This allows for investments in the riskier funds because the investor will buy more when the price falls. The average cost per unit so drops to a low. In addition, the investor will buy and hold the portfolio of stocks over a good number of years. In the long term, volatility is smoothened out nicely. If an investor who has a lump sum of cash and does not know what to do about it, DCA will be a much better method of investing, than placing the whole lump sum of money into a certain portfolio and then suffering if the fund turns stale . The only disadvantage of DCA is that the investor would wish that he would have invested faster into a certain fund when the price is going up. From the long term view, this will not really affect much though.

It will be good if we own good funds. It will be easy investing for us. There is just one…

Investing In Real Estate With No Money Down

Real estate investing with no money down, yes its possible and broadly practiced by several creative investors, as they say where there is a will there is a way. This is creative real estate investing at its best. There are so many ways that these investing investors use, it just boggles the mind!

Some investors use notes to invest in real estate with no money down. Let’s say the investor gets hold of a note whose face value is $ 100,000 and purchases it for $ 80,000. He uses the note as collateral for its full value to get a property worth $ 100,000. He can sell the house for $ 100,000 and can pocket $ 20,000 or more if he sells the property at a profit! He not only got back the $ 80,000 but also made quite a profit. Some investors with no money for down payments offer to take over the seller’s loan or mortgage payments in return for the title deeds of the property.

Flipping Properties;
Flipping properties is another way to invest in real estate with no money down because it just earns them a modest cash assignment fee.
Investors can borrow money from hard money lenders, use a home equity loan or get a line of credit, get the loan from a private lender and secure it with a mortgage, find partners who supply the money needed, etc.

Lease Options;
Using lease options or lease purchase options is another way to invest in real estate with no money down. The lessee agreements to buy the property from the seller at a fixed rate at some fixed time in the future, where a portion or at times all of the rent paid will be credited towards the purchase price of the property. The lessee has to pay monthly installments until the end of the lease.

Seller Financing;
Using seller financing is another way to invest in real estate with no money down. The seller may agree to get higher monthly installments rather than lump down payment or may offer to finance the buyer to close the deal quickly.

Tax Certificates;
…

Intra-Family Loans – Promissory Notes – Appraisal and Valuation

Basic Information

Definition

An intra-family loan is an estate-planning technique using a promissory note. The Internal Revenue Service sets forth rules that allow family members to make loans to other family members at lower interest rates than those charged by commercial lenders, without it being deemed a gift. The lender, usually a parent or grandparent, must charge interest to avoid making a gift to the borrower, but this interest rate may be very low (below market rate), with annual payments of interest only, as contrasted to monthly principal and interest payments. The loan can be structured as a “balloon balance note”, meaning the borrower pays interest only during the term of the loan, and then repays the entire principal at the end of the term.

From a cash-flow point of view, an intra-family loan, using this structure can be beneficial for the borrower. Because it benefits the borrower, it is detrimental to the value of the lenders promissory note.

Types of Intra-Family Notes

• Loans to family members

• Installment sales to family members

• Self-canceling installment notes to family members

Benefits

Intra-family loans create wealth shifting opportunities; wealth can be shifted from one family member to another family member, usually a child or grandchild, without incurring a tax liability. If the child or grandchild can earn a greater return on the amount borrowed than the low interest rate charged on the loan, he or she can keep the excess income with no gift taxes being paid. Wealth is transferred tax-free.

The required interest rate is set by the government monthly; it is called “AFR”–Applicable Federal Interest Rate. The actual interest rate used depends on the length of the loan; all of the current AFRs are very low compared to market interest rates.

Another benefit of intra-family loans is keeping the interest dollars paid within the family rather than paid to an outside party. The loan terms can be tailored to the…

Read More…. by Lawrence Tepper

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Friday, November 24, 2017

Tips for Selling Real Estate Notes to Mortgage Buyers

Mortgage buyers refer to real estate investors and investment companies that purchase real estate notes, land contracts, trust deeds, and mortgage promissory notes. Note holders can sell realty contracts in whole or part to obtain lump sum cash.

Note holders assign future payment rights to mortgage buyers via Assignment of Mortgage contracts. The document records the number of future payments transferred to the note buyer and outlines the terms of the sale. When partial payments are sold, a Partial Purchase Agreement is executed. To be legally-binding, both types of realty contracts must be recorded through the court.

When property owners assign partial payment rights the security documents remain in the mortgagor’s name, but property rights are transferred to the mortgage buyer. Once the terms are fulfilled, property rights revert back to the original note holder.

For example, John Doe owns property valued at $ 200,000 and requires $ 50,000 in cash. Mr. Doe has entered into a seller carry back mortgage which generates $ 1500 per month in income. He would need to sell 34 payments to a mortgage buyer in exchange for lump sum payment of $ 50,000.

John Doe records the assignment of payments using the partial purchase agreement. Once the final payment is issued to the mortgage buyer, the property rights revert back to Mr. Doe.

Actual payment amounts can vary based on fees assessed by the mortgage buyer. Some investors charge a percentage of advanced funds, while others assess a flat fee. Property owners should consult with multiple cash flow note investors to obtain the best deal.

While the majority of mortgage buyers are reputable, it is crucial for property owners to conduct research prior to assigning future payments. The Internet is a good research tool, but note holders should also check with the Better Business Bureau and state licensing board to ensure the mortgage buyer is in good standing and…

Appraising And Valuing Mortgage Notes And Real Estate Notes

Is value absolute or subjective?

Under normal circumstances we think of individual things and having “a value” (one value). But, in reality most things have multiple values. As an example, your beautiful dress or suite may not fit me; consequently, it was worth $ 800.00 to you, but I would not buy it at any price. The same reasoning applies to mortgage note and real estate note valuations. The value of the note will be materially different, depending on who is doing the valuation and why they are appraising it.

Can different and conflicting valuations and appraisals all be correct?

In reality, different investors, who are honest and accurate, can and do arrive at totally different dollar values for the same mortgage note. There is not just one true value. As the saying goes, “beauty is in the eye of the beadler” -value is in the eye of the beholder. There can be many different values placed on the same note, depending why it is being appraised and who is doing the appraisal.

Here are a few examples of different valuations that may conflict, yet all may be correct:

Appraised value
Book Value
Discounted Cash-flow Value
Face value
Fair Market Value
Future value
Intrinsic Value
Market value
Nominal value
Owner’s value
Third party value

Why are mortgage notes and real estate notes appraised?

People do not just decide to have a note appraised. There is always a reason. The reason will determine the assessment approach to be used. If the note is being valuing for tax purposes-inheritance tax, gift tax, estate tax, donation tax deduction-the IRS will specify the appraisual definition to be used. If the note is being valued for selling purposes, the potential buyer will probably have an opinion of value that differs from the seller’s. Negotiations will be required to arrive at a mutually agreeable price and complete the transaction.

How are different valuations compromised?…

Read More…. by Lawrence Tepper

The post Appraising And Valuing Mortgage Notes And Real Estate Notes appeared first on Note Investing Seminars.

Appraising And Valuing Mortgage Notes And Real Estate Notes published first on http://www.noteseminars.com/
Appraising And Valuing Mortgage Notes And Real Estate Notes published first on http://www.noteseminars.com/

Successful Investing in an Ever-Changing Market

Is it really possible for investors to get a 20 to 30% rate of return on their money in a crisis economy? The answer is yes. A vast majority are simply unaware that this rate of return is entirely possible by using a self-directed IRA to invest in mortgage notes (also known as trust deeds in certain states).

Statistics show that only approximately 4% of investors are currently in the know about the self-directed IRA, and many are unfamiliar with mortgage notes as an investment vehicle. However, employing these investing strategies could be the key to increasing the value of your retirement portfolio exponentially.

Self-Directed IRA De-mystified

The self-directed IRA only differentiates from a traditional IRA in the sense that the owner has the freedom to diversify, investing in non-traditional or alternative assets, such as real estate and mortgage notes.

It is relatively simple to convert your IRA account to a self-directed IRA and as long as certain IRS guidelines are observed, it can indeed be the pathway to achieving a desirable above market rate of return. The IRS code permits individuals to invest IRA funds in investment property such as single or multi-family dwellings, apartments, commercial buildings, raw land, vacation rental property, condominiums, mobile homes and more.

Investing in Higher Yield Mortgage Notes

Mortgage notes or trust deeds as secured loans most often provide “real estate property” as collateral. Think about it. In the event that the borrower defaults on the mortgage note, the tangible real estate asset – the property — including any accrued equity and the borrower’s original down payment, is transferred to your IRA, benefiting you, the self-directed IRA owner/investor.

This risk-reward relationship is in great contrast to stock portfolio devaluation and loss, which leaves virtually nothing but grief in its wake, as many investors have unfortunately experienced in recent years. However, for…

Why Can not Get Full Face Value for the Sale of My Mortgage Note?

There are a number of reasons why you, the seller of a privately held mortgage note which you created when you carried the financing on the sale of your property can not sell this note for the full face value. The main factor however is risk.

Investors who buy mortgage notes are taking on the inherent risk of default. Yes you also have taken on this risk when you carried the financing on this sale and you should have built into the creation of your note and the structure of the transaction certain concessions to lower this risk. However most seller advanced deals take place without the seller of the property building in extra risk protection. This factor is what creates their frustration when wanting to sell their mortgage note.

Since they can not get full value for the sale of the note because the investor wants to make the purchase is most certainly going build in his own risk protection, they may have to take a discount that can bring the overall profit from the original sale of the property well below or even negative to what they desired. Many times the mortgage note holder must get full value or very close to it for the sale of their note, otherwise he / she may actually be taking a loss on the property sale. When they need ninety or more percent in order to realize an overall profit and the note buyer can only offer 73% of face value they may feel as though the potential buyer is trying to rip them off. This could not be farther from the truth.

The potential buyer of the mortgage note has very specific criteria that they will use to valuate your note. The terms and conditions of the note itself, the current market value of the property, and your buyer’s ability to pay are the three main factors which will determine the discounted value that lowers the risk to an acceptable level for purchase.

As the seller of a mortgage note you must put the shoe on the other foot and view the potential transaction…

Learn How to Invest

These days there are literally thousands of ways in which to invest your (or someone else’s) hard earned money. Before you commit though, have you taken the time to actually learn how to invest? Have you taken the time to do due diligence and not relied on what someone else has advised? The cheapest advice is at the end of the day, usually the most expensive. So how just do you learn to invest?

Whether you have one dollar or one million dollars, the principles behind investing remain the same. That is to make a return on your investment, and reserve your capital. A most basic concept, but quite often forgotten as when we invest in today’s world it can be likened to gambling on a horse race. The trick to coming out on top is to learn how to invest using proven strategies and from people who have gone before you and to learn from the mistakes that they made.

The greed is good days are near behind us and many successful investors have began to give back to others buy educating those who are willing to learn in their chosen investment vehicle. This is done in a variety of ways, including books, live seminars, home study DVD’s, online webinars and over the phone mentoring.

You can find a mentor in any field you choose, and with the power of the telephone and the Internet, you can be on the other side of the world from them. If you want to be a successful property investor, share or options trader, Internet marketer, or even a business tycoon, then you will be able to find people and companies that are able to help you. Much of this assistance can be found free of charge all over the Internet, and much will cost you substantial amounts.

You may pick up most of the basics on the Internet if you know where to look, but if you really want to get serious, then you must make the best investment you can. You must simply invest in yourself. When we are given something for free, often we will put no value on it and…

Investing in Non-Traditional Assets – What Is the Value of My Promissory Note?

What is the Value of my Promissory Note?

Traditional Investment Assets

Stocks, bonds, mutual funds, and exchange traded funds are examples of “traditional investment assets.
The value (price) of these assets is public information published daily. Their value may fluctuate by the hour, but it is always known.

Non-Traditional Assets or Alternative Assets

Alternative assets are not publicly traded. Their value (price) is not published and is not available from any central source. They are bought and sold individually, privately, with no public disclosure. Examples include real estate, commodities, rare coins, stamps, artwork, LLCs, and private promissory notes. Recently, the term has been used to refer to other asset classes such as private equity, venture capital, and hedge funds. An accurate valuation of these assets typically requires a third-party, professional appraisal report. There is no public pricing information available.

Liquidity

Liquidity means that an asset can be easily, quickly and inexpensively converted to cash. Alternative assets (non-traditional financial assets) are less liquid than regular assets. Therefore, investors considering alternative assets are investing into the future; liquidity is sacrificed.

Advantages

The main advantage of alternative assets is that they diversify an investor’s portfolio and offer higher potential yields. Since they are non-traditional investments, they do not move in the direction of the stock market and may, therefore, help a portfolio off-set market volatility. Also, due to lower liquidity, alternative assets are often mispriced and so offer opportunities for arbitrage.

Disadvantages

Due to its non-traditional nature, alternative assets are more difficult to add to a portfolio. Therefore, banks may charge an additional fee for holding the asset. Depending on the returns realized from the asset, additional tax forms may have to be filed. …

Read More…. by Lawrence Tepper

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Discounts Applied to Determine Fair Market Value of Promissory Notes

Promissory Note Discounts for Estate and Gift Taxes

Fair Market Value Compared to Book Value

Customarily we think of the value of investments as their cost in our books and records-“book value”. If we paid $40,000.00 for a promissory note paying 6.5% interest we normally feel its “value” is $40,000.00. But, the IRS’s definition may cause the investment to be valued for tax purposes at a very different figure. Book value is not always the same as IRS Fair Market Value.

What is Fair Market Value?

The definition of “fair market value” used by the IRS is the controlling value in areas of taxation, including gift tax and estate tax. For all taxation purposes, “fair market value” of a promissory note is based on the traditional standard of a “willing buyer—willing seller”. The fair market value of a note is “the price at which the note would change hands between a hypothetical willing buyer and a hypothetical willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.” IRS Publication 561 defines fair market value. Treasury Regulation 20.2031-1(b)

Determining Fair Market Value is not an exact science; it is an educated estimate; it is estimated because there is usually no identifiable market for private promissory notes. It requires an experienced, independent appraiser who is actively involved with the valuation of promissory notes.

What is the Purpose of Applying Discount to Determine Fair Market Value: The purpose of applying discounts is to adjust the yield of the note to reflect its risk. All investments have risks. Their yields (income) reflect that risk. A high risk investment carries a high yield—a low risk investment carries a low yield. The reason for the use of discounts is to adjust the note’s yield (income) to reflect the risks inherent in the note. The interest rate printed on the note cannot be changed. But, by lowering its value (price), its yield can be…

Read More…. by Lawrence Tepper

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