Guide To Cash Flow Notes

Answer 1

You may have heard the term 'cash flow note' and have no idea what it means. In the most basic terminology, a cash flow note is essentially a legally binding contract that says a borrower must repay a lender. There are many types of cash flow notes. The most common ones include real estate notes and structured settlements. Usually, cash flow notes are secured by something. For example, a real estate note is secured by whatever property is on the note such a house or building. If the borrow defaults, the property can be seized. Cash flow notes can be bought and sold as well. For example, someone can sell their cash flow note for a flat rate instead of collecting money over a period of time. As a result cash flow notes are often hot items for real estate investors.

Cash flow notes aren't just tied to real estate. Structured settlements are cash flow notes that cover a wide range of areas. If you receive compensation as a result of an injury from a person or company you will likely receive a structured settlement. This settlement is secured by insurance companies that pay you a certain amount of money each year over a designated period of time. This is the same theory that is applied to winning the lottery. If you win $100 million in the lottery, you can choose to receive annual payments or a lump sum payment. A lump sum payment is typically a small percentage of what you would get if you followed through on the annuity plan. Structured settlements are geared toward long term financial compensation. Like real estate cash flow notes, structured settlements can also be bought and sold.

Another common form of cash flow notes is account factoring. In this case, a company sells its invoices to a factoring company in order to be paid immediately. The customer is then billed through the factoring company. In this case, the credit of the customers is more important than that of a business.

Cash flow notes may seem confusing because there are so many types. The principle in all of them is the same though. It is a contract between a creditor and debtor or a buyer and seller that promises payment over time. Cash flow notes can be bought by investors or other entities that in turn provide the recipient with a lump sum payment. They then possess the cash flow note and are afforded the same security as the initial person on that note.