Investors have multiple options where to place their cash. Stocks, bonds, mutual funds, in a bank account and financing real estate with private notes. Bonds don’t provide very much at all in return Private money lendingand while mutual funds attempt to mitigate the risk of investing in a single stock by including various publicly traded companies within an individual fund. Stocks and mutual funds can rise and fall in value based upon the perception of future performance. With a private note, the returns are known in advance both in terms of how much is paid back and when. Here’s how the price of a stock works.

 

Say a company wants $100,000 for an expansion. Instead of hitting the bank account, the company issues 1,000 shares of stock each then valued at $100.  After one year, the company reports a $50,000 after tax profit. Dividing the $50,000 profit with the number of shares issued, the earnings per share is $50. If investors feel the company will continue to perform, the value of those shares will rise with the increased demand. Of course, the opposite can also occur.

Consider that same company that raised $100,000, issued 1,000 shares of stock worth $100 each. At the end of 12 months, the company reported a loss of $100,000. Now what are the shares worth? Investors will likely shy away from investing in the company due to concerns about losing money. For stockholders who want to sell the stock and liquidate any ownership in the company will have to sell the stock for much less than they paid for it. Further, the company could go bankrupt causing the shares of stock to become worthless.

Private notes on the other hand are guaranteed a monthly return. If the note is not secured and is issued to someone after review of credit and financials, there is still the possibility of a default, albeit slight. Private notes secured by real estate however both provide regular, solid returns but secured by the property being financed.