Cash Flow Notes: Wise Investment or Scam?

Buying and selling cash flow notes can be profitable endeavor for some, but for most getting involved in the business is unwise. If you are thinking of getting involved in the cash flow note business, there are a few of factors to consider.

Cash flow notes are simply promissory notes between two parties. Just like any other loan, they have terms like interest rates and payment schedules. Most cash flow notes are attached to a piece of real property (think rental apartments). During the term of the note, if the payee can no longer make payments the property can be liquidated to settle the debt.

Some brokers have found ways to develop a profitable business buying and selling cash flow notes. They spend time finding people who hold cash flow notes and offer to buy them at a price considerably less than what the note is worth. Sometimes, if the holder of the note is in a bind, they will be happy to sell to get cash up-front (similar to selling an annuity stream). The broker then purchases the note and collects the monthly payment, which in the end will turn them a nice profit.

Select brokers, who have established profitable cash flow note businesses, offer individuals the opportunity to invest in cash flow notes indirectly through them. Many people are lured in by their infomercials, seminars and workshops. Certain brokers have been very successful in enticing others to try out the business. They do this by making big promises of getting rich quick. Like anything that sounds too good to be true , the promises of quick riches are false and many have been exposed as pure scams.

Brokers claim that they can show individuals how to get started by finding people who hold cash flow notes, convincing them to sell the note and then bringing the deal to a broker. The broker in turn will pay a finders commission. The more notes you find, the more money you make. You are led to believe that you will be able to turn a quick profit and that once you have enough profit you can buy and sell notes on your own for even more money.

People thinking of staring such a business should be extremely cautious, and for good reason. The risk involved is high. First off it could take you months or years to find someone who is willing to sell their cash flow note. Not to mention that if you do not understand terms of the agreement and just one person defaults on their note, it could be financially devastating. Hiring a lawyer who understands the business will be necessary to protect your investment, cutting into your profits. Lack of diversification is another concern, and if the note stops paying you could have trouble collecting.

Very few individuals find that buying and selling cash flow notes is truly profitable. Those that do turn a profit find it can take years to become established. At the end of the day, there are far easier and safer ways to make a few bucks.