Collateral Based
These are are probably the Income Streams that we are all most familiar with. Anytime anything is sold and payments are collected over time, that note can be sold to get a large lump sum of cash now rather than over the extended period of time.
Private Mortgages
Mobile Home Notes
Marine Paper
Equipment Leases
Automobile Paper
Private Mortgages are indicative of how all the other collateral-based income streams work, but we’ll cover several of them for examples.
Bill has a house to sell for $100,000. He needs to sell in a hurry or it is in an area that banks aren’t interested in financing. Or Mary wants to buy the house, but because several years ago Mary had some cash flow problems that caused her to be late on a few payments, the banks won’t help Mary out. Whatever the reason Bill can still get cash for his house. Bill checks out Mary’s credit and realizes that she is a good credit risk now, but the banks are bound by their rules. Bill carries the paper on the house with Mary. He finances it himself, holds the Mortgage Note and the Mortgage Deed (or Deed of Trust depending on what state you are in). Mary makes payments to Bill. Bill can either keep the Income Stream as it is -- receiving payments monthly from Mary -- or Bill can contact his Cash Flow Specialist who will contact a Funding Source that will buy Bill’s Privately held Mortgage. Bill gets his lump sum of money (net effect is he sold his property for cash). Mary keeps the same terms as she set up with Bill. The Funding Source gets Mary’s payments for the life of the note.
Of course motivation and circumstances will vary, maybe Bill got the note from an inheritance or trade on a piece of property, it doesn’t matter. Bill can sell off the note and get a lump sum cash amount now. A qualified Cash Flow Specialist will also show Bill that he doesn’t have to sell the whole note. Maybe it was a 20 year note and Bill will be retiring in 10 years and would like the payments to supplement his retirement at that time, but he needs money now. The Cash Flow Specialist can put bill in touch with a Funding Source that will only buy the first 10 years of the note. Bill will get a lump sum now, and in 10 years he will get the monthly payments coming in for the remainder of the life of the note.
Ask your Cash Flow Specialist about selling only part of the note. Many Cash Flow Specialists don’t want to tell you about partial selling of notes because it reduces their fee. To me this is unethical. If you only need some of the money from the note, there is no need to sell the whole note.
Another option to consider is what is called a "Pass Through" or in some places a "Reverse Partial." In this case, let’s say that Bill is carrying a 15 year note. He needs a lump sum of money now, but he also needs to show that he has steady income coming in for the next several years. A Cash Flow Specialist would be able to find a Funding Source that would be willing to buy up the back end of the note. For instance the Funding Source may purchase the last 12 years of the note. In this case, Bill would get a lump sum now, and he would be getting payments for the next three years. His Balance Sheet and Income Statements would look good for his new business venture. At the end of three years, the monthly payments would go to the Funding Source instead of Bill, but he would have had the money for the last 12 years to use already. This is a potentially interesting funding option, and some Funding Sources won’t want to bother with it. But a qualified Cash Flow Specialist will be able to find a Funding Source that will be willing to work your deal to your benefit.
Mobile Home Notes are similar in process to Privately Held Mortgages. A Cash Flow Specialist will be particularly helpful if you are holding paper on a Mobile Home that is more than 5 years old. Many banks won’t loan on Mobile Homes that are older and so it is more difficult to get "cash" out of an older Mobile Home. A qualified Cash Flow Specialist will be able to put you in touch with Funding Sources that specialize in Mobile Home Paper.
Let me give you just a suggestion. If you have read this far, you deserve a tip, and here it is. Find a Mobile Home that is about 10 years old. You could probably pick it up for about $5,000. In a rural setting you probably could purchase an acre of land for under $10,000. Consider $5-7000 for utilities, etc. Actual costs may be less. You could set the mobile home on the land, take off the wheels, remove the tongue, put it on a "foundation," and have only about $20-$25,000 in the whole deal, and probably less. Find a good renter for about $450 per month. Offer the renter an option to buy the Mobile Home for $37,500 at 12%. This means that his payments would stay at the same level for 15 years and then he would own the mobile and the land. Is this a good deal for him? You bet it is. You take the paper from the sale, contact your Cash Flow Specialist, and he’ll be able to put you in touch with a Funding Source that will buy that paper. You’ll be able to make, even selling at a discount, about $10,000, depending on what your actual expenses are in setting up the deal. Not bad, considering it would probably take you less than a month to do the whole deal, maybe two months on the outside.
Marine Paper (Boats) is basically the same game. If you have sold a yacht or a cruiser or anything and you’re receiving payments, your Cash Flow Specialist will be able to put you in touch with a Funding Source that buys Marine paper and can cash you out.
Equipment Leases are able to be bought and sold just like commercial leases or Mobile Home Paper. It is similar to a commercial lease in that it is a lease, but it is similar to Mobile Home Paper in that there is something that can be held as collateral. If you are a company that leases equipment, contact a Cash Flow Specialist. He can show you how to turn monthly lease payments into lump sum cash for further expansion. If you are needing to lease equipment, also contact your Cash Flow Specialist who may be able to find you a deal on leasing equipment, even though your credit may not be as good as it should for regular leasing terms.
Automobile Paper is able to be bought and sold just like Marine Paper, but because Automobiles are so moveable, there are some extra things the Funding Source needs to look into in order to protect its interest. Contact a qualified Cash Flow Specialist to help you with this type of transaction.