Skip to main content

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

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

The post Seven Promissory Note Myths and Seven Myth Busters appeared first on Note Investing Seminars.

Comments

Post a Comment

Popular posts from this blog

What Is a Promissory Note? What Are They Used for?

A promissory note is a written contract between parties-a borrower and a lender– signed by the borrower. It contains an unconditional promise to pay a certain amount of money on demand, or in installment payments over a period of time. It is used in a financing transaction – a lending transaction. The individual who promises to pay is the maker (borrower), and the person to whom payment is promised is called the payee or holder (lender). The loan transaction can be secured or unsecured. A secured loan has specified property pledged to cover the repayment if the borrower defaults on making the payments. Another form of collateral security is a co-signor. A co-signor, or a guarantor, is a person who agreements in writing to repay the debt if the borrower defaults. This means that the holder (lender) protects his financial interest by using the maker's collateral security or the maker's co-signer. If the maker fails to pay according to the agreement, the holder can foreclose on...
Post a Comment
Read more

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 simil...
Post a Comment
Read more

5 Steps to Becoming a Master Investor

Diversify – Diversification is a powerful investment tool that helps you reduce the risk of holding aggressive investments. Diversifying simply means that you should hold a variety of investments that do not move in tandem in various market environments (for instance bull and bear markets). You do not need 50 different funds in order to diversify. You can diversify with five, at the most 10, mutual funds or ETFs. Keep fees to a minimum – For both mutual funds and exchange traded funds you can look at the 'total expense ratio. "The best case is an expense ratio less than 1%, and certainly no higher than 2%. have to watch out for "sales load". Be aware of your time frame – Match your time frame to the investment. For example, for money that you expect to use within the next year, focus on low-risk investments such as money market funds, certificates of deposit or US government bonds. Ignore the "gurus" – Pay no attention to the fortune-tellers and pro...
Post a Comment
Read more