Joe:
I have always advocated that you should get in the habit of asking for “discounts” when buying goods, services, real estate, notes, “toys” (boats, cars, planes) etc.
In our daily lives we all can save over the years a tremendous amount of $$$ simply by asking. I have a notary service that charges everyone else $10.00 per signature, however they charge me $7.00 per signature. WHY? because I have promised to use their services exclusively and asked them “if they could do better?”. A printing company has done the same thing for us.
The $3.00 does not seem like much, but over time, month in and month out, year in and year out, it does add up.
Get the in habit of Asking whether or not “can you do any better than that?..” and you will be surprised at the responses & benefits. As for your lenders, they very well may not be willing to discount for early pay off, however I have seen some cases where they will.
I was wondering if there is a good rule of thumb in deciding whether one should invest in a note or payoff debt? I was in a recent car accident and the settlement will be about 16K. I was originally going to payoff of a good chunk of my car loan…but got to thinking about notes. If I could find a note that bears a better interest than my car loan… wouldn’t it be smarter to purchase a note instead? I have no experience with notes except for selling a few mobile homes via notes. Can anyone give me any general direction?
Joe
ps Is there a place where Mr. Behle’s Mentoring Associate Program is discussed on this web-site. All I know is that he has it…but dont know anything but what it obviously implies.
Posted by Nate Tyler on June 05, 2000 at 21:50:41:
Joe
When I read your first paragraph, I knew my answer.
After you mentioned that you’d already done some lonnie deals, I knew it was a no-brainer.
Take that 16k and do 5 lonnie deals. Add up your cash flows and tell me that doesn’t make up your mind.
I don’t have my calculator with me now, but I’m sure you’ll find that you’ll pay off your car with the cash flow, and pocket a nice chunk at the same time.
Anytime you can borrow money at 9% and invest it at 100%…
Joe:
If you pay off your debt, then you are in essence investing your cash at the rate of interest charged to you on that debt. If you automobile loan is at a low interest rate that might not be the wise thing to do.You might look to credit cards, and other debt that has higher interest costs to you and consider paying them off.
However if you can pay off your own debt at a DISCOUNTED amount, then you are realizing a greater return. So see if anyone you owe $$ to will accept less for a full pay off.
Buying a note and tying up your cash in that fasion is an INVESTMENT. There is risk, and hopefully the rate of return will off set some of the risks (default, delinquency, unpaid taxes or insurance, fire, etc.) associated with buying a real estate secured mortgage or trust deed. When you invest your funds you are wanting them to grow and have those funding working for you.
Weight the differences and decide what is best for you
Money in motion is better than money gone. Once money is spent it can no longer work you and do it’s singular purpose… which is to replicate itself.
Are you an active or passive Investor, give me an idea of how aggressive you are and I’ll, and I’m sure others will post some ideas on how to make it pay for your car and still have some left.
If you invest in a note at 16% instead of paying off a 15% car debt normally this is a losing tactic. Car interest payments are not tax deductible, but your 16% note income will be taxed.
Are car loans typically discounted by the lender? Actually I have a bunch a significant amount of school loans also…are these typically discounted too…or does it just mainly depend on the lender?
The only creative investments that I have done are 3 lonnie deals (in a 3 year span, 2 of the 3 within the last 6 months). Am I willing to invest in aggressive ways?..yes. Of course, depending on what it is. At this point, I am mainly looking at my different options. Kind of thinking out loud to this group which has much knowledge on the subject.
Hopefully I gave ya some more info. to where I stand.
Regarding taxes: one should be able to do a lot better than 16% on a note. A note has yield in addition to interest. With $16,000 one should be able to 1) create a note with a high yield and interest (mobile homes are good) or 2) invest in someone’s deal or 3) buy a note.
One of the money lessons that keeps repeating itself, and I finally get it (at age 37) is that money spent on debt does not create cash flow. Windfalls used for living expenses do not create cash flow. And, cash flow is everything. I’ve had two large bonuses in the last 4 years (10K and 25K) that, had I invested them in notes, would have provided for my monthly living expenses. (I live frugally). Instead, I spend them, living frugally anyway, without any of the security of knowing where the next dollars are coming from.
Stay on this board and work out a way to invest that $16,000. There is an investment style for everyone.