Utilizing Cash Flow Notes – A Story of a Banking Business

Bonnie and Clyde Barrow had very successful banking careers. However, they were tired of all the travel and the hectic lifestyle. Deciding to take a sabbatical, they wanted to put a large chunk of their savings into high income investments to help defray their living expenses.

Clyde contacted a mortgage broker who specialized in originating hard-money first and second mortgage loans (cash flow notes),with interest rates ranging from 12% to 16%, over two year to 15-year terms. The Barrows wanted those kind of returns, so they invested $200,000 into several of the broker's loan packages. (Cash Flow Notes)

Two years of quiet living primed the Barrows to jump back into their fast-paced banking careers. Needing a new car and the new equipment their business required, the

Barrows decided to pull the money out of their loan note portfolio.

One problem -- their funds were tied up in mortgages (cash flow notes) that still had five years left to go. Not wanting the Barrows to pull the trigger on their relationship, the mortgage banker contacted his cash flow note broker friend, Tommy Gunn, to see about selling the Barrows' cash flow notes.

Gunn saw that the Barrows had received 24 monthly payments of $2,343, at 13% interest. The remaining balance on their cash flow notes was $195,192; there were 60 payments left, plus a balloon payment of $176,016. The Barrows weren't too keen on discounting their cash flow notes, but Gunn made them an offer they couldn't refuse.

Gunn would purchase the last 30 payments for $40,175, providing plenty of cash for the Barrows immediate needs. The Barrows would keep the first 30 payments (totaling

$70,290), providing a monthly cash flow while they were getting their careers restarted.

In five years, the Barrows would still receive the $176,016 balloon. Bonnie and Clyde quickly saw that they were getting $286,481 ($40,175 cash now, $70,295 through 30 monthly payments, and the $176,016 balloon) for their $195,192 cash flow note balances! This is better than robbing a bank, they thought to themselves. What a deal!

Meanwhile, Gunn was pleased with the 15% yield he had discounted into the deal and the mortgage banker was relieved that a partial purchase of the cash flow notes solved a big problem for him and his clients!

This tall tale doesn’t mean that only bank robbers like Bonnie and Clyde are the only ones that can realize substantial income through buying and selling cash flow notes.  Most small business are sold with the owner carrying back a note because he/she really wanted to sell their business.  The owners really would have the cash today instead of receiving relatively small monthly payment now.  Listing s note on a national note network of buyers will usually get the owner top dollar for his cash flow note.