How To Invest In Discounted Car Notes
There are many types of cash flow notes, but one of the least-known is discounted car notes. It is a VAST, and at present, virtually unknown market. No bank or financial institution invests in auto notes, and unlike the banking industry, there are no regulations governing it.
What is a car note? A car note is a financial instrument by which the purchaser of the automobile gives the lender (the car dealer)a lien on the car as security for repayment of the loan. The buyer of the car signs a note for the total of the loan. The borrower has use of the car, and the lien is removed when he or she pays off the loan.If the payments are missed, then the dealer has the legal right to repossess the vehicle.
A note is typically created because there are not passable prospective buyers who can qualify to borrow money from a bank or other financial institution.If that kind of financing were available, the dealer would have no reason to take back a note. Buyers are ofttimes willing to pay more for their cars and at a higher interest rate because they do not qualify for traditional loans.
Basically, car dealers, specifically the “Buy Here/Pay Here” lots, have cash flow problems. Banks are often hesitant to loan these dealers money, so it can be difficult for them to purchase new stock. Banks do not mind lending money on real estate, but it is very difficult to get a loan on inventory. You, as an investor, can offer to buy existing car notes…loan papers on vehicles already sold…at a discount. You receive a nice monthly or even weekly cash flow, the dealer gets cash in hand so he or she can purchase more automobiles and pay their overhead, and the customer gets a car so they can go to work, school, etc. Everyone wins!
You can receive almost unbelievable profit when you invest in discounted auto notes. Many investors typically make returns of 40% to 80% or more and have virtually no competition. This is truly the best-kept investment secret. Despite the huge yields, discounted auto notes are relatively safer than other investments that promise very high yields.
Buy Here-Pay Here Dealers charge anywhere from 18% to 36% interest, depending on where they are located, therefore, purchasing their notes at a discount results in yields of 40% to 100%. For illustration, in South Carolina the maximum allowable interest that a car dealer can charge is 80%!
Since this collateral has wheels, investing in discounted vehicle notes is not for the cautious. It’s also a numbers game. You should buy at least 10 notes, more if you are able, in case a few default and you can’t locate the vehicles. Given the huge yields in this investment (40% – 100%), you can afford a 50 percent default rate because of the profit you make on the ones that pay. But you can’t afford a high default rate if you only have a couple of notes.
Make some calls, drop in on some car dealers, and start exploring the possibilities in this most profitable niche of the cash flow business!
