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
The post Seven Promissory Note Myths and Seven Myth Busters appeared first on Note Investing Seminars.
Seven Promissory Note Myths and Seven Myth Busters published first on http://www.noteseminars.com/
Seven Promissory Note Myths and Seven Myth Busters published first on http://www.noteseminars.com/
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