Wednesday, February 1, 2012

Promissory Note Investing ? Three Mistakes to Avoid

Planning for Retirement

Creating a retirement account that will take care of your financial needs after you stop working full-time is a major challenge in today?s economy. Most traditional investments have flays, shortcomings, and risks that make them unappealing.

Putting your savings into a bank account-savings account or certificate of deposit account-is certainly a safe investment, but, the rate of interest being paid on all bank accounts is almost pathetic; ?% to 2% per year will not get the job done; bank rates of interest will be of little help in building a sizable retirement account. Speculating on a commodity, such as gold, is a high risk; speculation is not the correct investment approach for most retirement investors.

Investing in blue chip common stocks is a volatile and highly unpredictable activity. Investing in government or corporate bonds is a complicated, low-interest paying, and volatile activity. It certainly appears that none of the popular, traditional investment vehicles are able to help a retirement investor be successful and relatively safe.

Consider Investing in Promissory Notes

In today?s economy, a retirement investor can invest by owning one note, by owning a portion of one note, and by investing in a pool of mortgage notes. Typically, a promissory note secured by a mortgage on real estate will yield the investor between 6% and 12%. This wide variance in yields occurs because each note or each pool of notes is usually ?unique?. Each note, or each pool of promissory notes, will have different interest rate terms, different durations, different risk factors, and different collateral security.

Mistake 1: Believing that a high interest rate indicates a good investment.

The interest rate that is unusually high almost always indicates a risk or risks that are unusually high. Although a high interest rate is tempting, do your own due diligence, or get expert help, so that you understand why the interest rate is high and what the risks are.

Mistake 2: Believing that there are no costs or expenses associated with promissory note investing.

As is the case for any financial transaction, there can are costs and expenses related to investing in a note. In most cases, the information is available ?up-front? if the investor asks for it. Don?t be bashful; it your money that you are investing; you are entitled to a full disclosure of all costs and expenses to be incurred, in advance of closing the transaction. If those items seem unfair or unreasonable, don?t close until you are comfortable.

Mistake 3: Believing that you can sit back and watch the payments rolling.

After the note is created or purchased, your investing job is not completed. Someone, either you or a professional loan servicer, must monitor the loan-this function is called ?servicing the loan?. Payments have to be received and posted into a record keeping system, and the hazard insurance and property taxes must be keep current.

Suggestions: Until you are experienced as a promissory note investor, it would be best if you do not invest solo. Engage an experienced note specialist to advise you and protect your interests. Another approach is to partner with an experienced investor.

Investing a pool of mortgage loans can be the easiest. The pool operators do the due diligence before selecting the individual notes to purchase. They then service the loans, record the payments received, remit to the individual investors, and essentially create a ?passive investment.

Remember, know who you?re partnering with, or who is running the investment pool.
It is your responsibility to protect yourself and your retirement account.

?If you don?t understand it, don?t invest in it!?
?Investing without understanding is like playing poker without looking at the cards.?

Lawrence Tepper specializes in:

Promissory Note and LLC, Valuation, and Appraising

Expert Witness?-Expert Consulting Services

EDUCATION AND TRAINING

Law Degree /Accounting Minor University of Denver
Colorado Real Estate Broker? Promissory Notes Specialization
Certified Commercial Investment Member From National Assoc. Realtors

PRACTICAL EXPERIENCE
35 + years of appraisal and valuation experience for Attorneys, CPA?s, Estates, and Financial Planners.

http://promissorynoteappraisers.com/

Author: Lawrence Tepper
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Source: http://e07.net/promissory-note-investing-three-mistakes-to-avoid/

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