Learning by Experience can be Tough, and the Tuition is High
Being a beginner in any endeavor is always challenging. The beginning note investor has many important decisions to consider and evaluate. Investing in mortgage notes and promissory notes is profitable when done correctly. Learning to do it right, the first time, is safer and cheaper than learning by making your own mistakes. The school of hard knocks charges a high tuition.
Just like every serious activity, note investing requires preparation, education, training and experience. Obtaining these essential requirements can be costly if not done carefully. Since investing involves putting money at risk, it should be done with care and caution. It should not be done without experienced guidance. It is not recommended it be done as “on-the-job-training” or “earn-while-you-learn”.
Types of Accounts-Tax Deferred, Tax-Free and Ordinary Plans
There are many types of investment account available; each has benefits and drawbacks. Let’s take a quick look of some of the most popular types. In the retirement account group there are:
Traditional IRAs (Individual Retirement Account) where specified deposits are allowed annually that are tax deductible. These are invested in publicly traded assets-stocks and bonds. The distributions and withdrawals from the account are subject to taxation.
Self-Directed IRAs that invest in non-publicly traded assets such as real estate and promissory notes. The tax consequences are the same as for the traditional IRA account.
Roth IRAs can be invested in publicly traded assets or non-publicly traded assets. The tax is paid when the investment is funded; withdrawals and distributions are tax-free.
Rollover IRAs are IRA accounts receiving assets from another IRA account.
401(k) Plans are company retirement plans having government and company rules.
403(b) Tax-Sheltered Annuity Plans (TSA plan) is a retirement plan offered by public schools and
SEP Simplified Employment Plans. A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings.
The Department of the Treasury, Internal Revenue Service, and the Department of Labor make the rules for all retirement investing accounts. You will need information and guidance to select the plan best for you. To invest in non-publicly traded assets, such as mortgage notes and promissory notes, selecting the right self-directed IRA administrator is an important step. Be certain that the administrator you select can handle non-publicly traded assets.
IRS Tax Code allows you to invest your IRA dollars in almost anything, expect life insurance and collectibles. Collectables include works of art, rugs, antiques, metals, gems, jewelry, stamps, coins, alcoholic beverages, and certain other tangible personal property.
If using an IRA account is not right for you, consider doing your investing using an ordinary bank checking account.
Doing Due Diligence-Tips that Avoid Investing Mistakes
Due diligence is a phrase meaning “doing your homework” or “investigating before you invest”; it amounts to understanding the investment. Here are some key steps:
Don’t rush the investing process-allow no one to rush you into a decision
Don’t invest all of your capital into one investment-diversify
Understand the asset you are investing in-how does in actually work
Understand how that asset will repay your investment-from where will the money come
Understand the down-side risk of loss-all investments bear some risk of loss
Understand what happens if the investment develops problems
Understand the rules and laws govern your rights and your duties
Understand any contract or document you sign, before signing it
Understand who you are doing business with-get acquainted
Beware of scams and cons-be skeptical
Get rich slowly. A swindler always promises “quick profits,” “fast money,” or “easy money.” Consider this: if quick, easy and fast profits were available, would a stranger be offering them to you? The stranger would keep those quick, easy and fast profits for himself, his friends and family. Rarely will you be able to pay a low price for a high-value asset; rarer yet is when a stranger provides you with such a bargain.
Be wary of promoters and salesmen who claim loyalty to your group or your organization. The group may be your religious organization, your community volunteer organization, your school alumni organization, or any other group you like and trust. In our world of complexity, many people feel they need a quick way of deciding who to trust. Deciding who to trust takes on serious considerations in the world of investing. Investigate before investing.
Be wary of unusually high returns. All investments carry risk. Normally, high returns are created by high risk. Examples of high risk are speculative stocks, speculative real estate, speculative bonds, start-up companies, new ventures, etc. Examples of low-risk investments that pay proportionately low returns are FDIC insured savings account, U.S. Government bonds, blue chip stocks and bonds, etc.!
Summary
Investing without understanding is like playing poker without looking at the cards. Successful promissory note and mortgage note investing, like all serious matters, requires education, training, time and effort. As a beginner or inexperienced note investor, initially engage an experienced specialist to work with you and guide you-that’s like paying an insurance premium to protect against a large loss.
Lawrence (Larry) Tepper specializes in the valuation and appraisal of promissory and mortgage notes, and other cash-flow financial instruments nationally. Nation-wide services for banks, trust companies, self-directed IRA accounts, estates, attorneys, CPAs, and individual investors.
Consulting Services-Free Appraisal Price Quotes
EDUCATION AND TRAINING
Law Degree /Accounting Minor University of Denver
Managing Colorado Real Estate Broker– Promissory Notes Specialization
Certified Commercial Investment Member from the National Assoc. Realtors (CCIM)
PRACTICAL EXPERIENCE
35 + years of national promissory note and mortgage note appraisal and valuation for Banks, Trust Companies, Attorneys, CPA’s, Estates, Trusts, Executors, Administrators, and Financial Advisors.
“No charge” review and discussion of your file and documents–Fee appraisal quotes– Call or email.
Lawrence (Larry) Tepper