Creative Cash Flow Planning

Last week, we talked about using cash flow notes to earn a solid return on
your investment dollar. This week, I’d like to introduce you to another method
of earning anywhere between 16% to 24%, or higher on your investment. Tax lien
certificates can easily earn you a good, solid investment return.

Here’s how tax lien certificates work. When a property owner fails to pay
his/her property taxes, the unpaid taxes will eventually become delinquent. In
the states which issue tax lien certificates, the unpaid taxes are included in
the tax lien certificate, in addition to the penalties accrued and the interest
accumulated. These states usually offer these tax lien certificates to the
public at a sale or auction. When you successfully bid on a tax lien
certificate, you now own a certificate which bears interest and is secured by
the real estate on which the taxes are due. When the home owner pays his
back-taxes to the government, the government will pay you the amount paid for
the certificate plus the accrued interest.

This process usually occurs on a local (often county) basis and the rules and
regulations (and the interest rates earned) vary from one location to another.
So, before you invest in these tax lien certificates, you need to do some
homework and learn the rules of the principality you are purchasing the
certificates in. However, there is nothing to stop you from buying certificates
from many different locations.

You may be wondering why the local governments holding these certificates do
not prefer to hold the certificates themselves. The answer is that these tax
lien certificates represent monies which these governments need to fund
construction and repair projects and pay employee salaries. By selling the
certificates, the governments get the money to continue paying their bills, and
you get a great opportunity for an investment.

Of course, when you purchase a tax lien certificate, there is no guarantee as
to when the property owner will pay the back-taxes owed and redeem the
certificate. So, you may need to wait an unspecified amount of time for your
money to come back to you. Some of these certificates pay off very quickly, some
take longer.

What happens if the property owner never pays the taxes and redeems the
certificate? Your tax lien certificate is secured by the property as a first
lien. That means, if necessary, you can foreclose on the property and either
resell it, rent it out, or live in it yourself. At this point, you own the
property.

If you are interested in learning more about tax lien certificates, stay
tuned to the Cash Flow Clarion. I will be reviewing "Ted Thomas’ Secrets To
Earning 16%-18%-24% Up To 50% On Secured Government Certificates" very soon.
This is a comprehensive resource containing a 117-page introductory ebook which
explains the basics of tax lien certificates, an ebook consisting of a very
large county directory, plus two CD’s. I am in the process of looking through
this information as we speak and will let you know in the near future whether
this resource is worth your time and money (in my opinion). Look for the review
soon.

Are you looking for a good, relatively safe investment? Would you like to
earn 11%, 13%, 15%, or even more on the money you invest? If so, investing in
privately held cash flow notes might be exactly the answer you’re looking for.

Here’s how it works. Currently, there are countless people who are holding
cash flow notes. These cash flow notes might be in the form of mortgages, trust
deeds, structured settlements, lottery winnings, annuities…The list goes on
and on. These notes pay their holders small sums of money on a regular basis,
usually monthly, quarterly, or annually. However, many of these note holders
would rather have all of their money now rather than waiting for many years to
collect their money.

That’s where you come in. You can buy these cash flow notes at a discount and
earn a relatively good return on your investment. Returns in the 11-15% percent
are relatively common. When you purchase a cash flow note, you will pay the note holder a lump sum of money for the note and collect the payments on the note yourself. You profit because you have purchased this note at a discount, depending on the rate of return you have decided you need to receive.

If you’re just starting out, real estate notes are probably the easiest
investment. These may be mortgages or trust deeds, depending on where the note
is located. These terms (mortgage and trust deed) are often used interchangeably
and the process of purchasing a note is the same whether it is a mortgage or
trust deed. These are the easiest cash flow notes to deal with, because you can
deal directly with the note holder.

As an investor, you can choose the return on your investment which you would
like to receive. Almost all cash flow notes are sold at a discount. The size of
the discount will depend on the percentage of return you choose to receive. The
higher the return, the steeper the discount the note holder is required to
accept.

Generally, the more risks associated with the note, the higher the return on
the investment you can reasonably expect to receive. Risk factors involve things
such as:

• Payor credit rating - lower credit ratings are riskier than higher
  ratings
• Amount of seasoning - the more payments made on the note, the safer the
  investment
• Payment history - a flawless payment history is safer than a note in
  which many payments have been late or not received
• Amount of equity in the property - the higher the equity, the safer the
  investment

These are a few of the risk factors which a savvy investor must evaluate.
Once you have evaluated the risk factors and decided on what rate of return you
would like to receive, you will need to calculate how much to offer the note
holder for his/her note.

Once you have reached an agreement with the note holder and have performed
all of your due diligence, you are ready to close the transaction. As with any
other business dealing, you should perform your due diligence carefully. You’ll
likely want to confirm the payor’s credit rating, have the property appraised,
and review all the documents associated with the transaction. Providing all of
the paperwork is in order and no surprises “pop up” while you are doing your due
diligence, most transactions can be successfully completed in as little as 3
weeks or less.

First Class Cash Flow Handlers buys and sells cash flow notes. Please
contact us for more information.