Hoping for "leftovers" is the best way to having next to nothing in your investment account.
In accounting, one of the first equations we learn is the profit equation:
Income- Expenses= Profit.
The way it's shown to us, according to Mike Michalowicz, subconsciously tells us that profit is what is left over after other people take a chunk of what we've worked for. The author of Profit First flips that equation around, forcing us to see the end goal: Profit=Income-Expenses.
Shouldn't we have a plan in place to keep the profit from our investments?
Wealthy people are wealthy on purpose. According to Robert G Allen, they track both income and "leaks". If you're investing in notes (or anything else) wouldn't it be wise to budget and track your expenses while you're doing your due diligence?
Let's say you have purchased a 30 year, $100,000 real estate note for $80,000 & the borrower makes principal & interest payment to you of $950 per month. That means you not only got a discount of $20,000 up front (because the borrower still owes & must pay $100,000), but you get $342,000 in payments (360 x 950)! That's $362,000 in your pocket and a profit of 282,000! RIGHT?
Well, not really.
The $20,000 discount is earned monthly as long as the borrower pays as agreed. So, 20,000 / 360 months means you get about $56 of that discount every month they pay.
Why the discount? What is $100,000 able to buy today that it won't 30 years from now? What was $100,000 able to buy 30 years ago that it isn't able to buy today?
The $950 is earned each month as well; if the borrower doesn't make the payment, you get nothing and may be on the hook for taxes & insurance payments; this is something experienced note investors take into consideration before buying.
It is vital to have a plan and a system in place long before you buy a note. To find out how notes can add the reliability of real estate to your portfolio and keep your note profits, download What Can Notes do for You?
Click the button below to get your copy.