Note Investing for Maximum Income — Tailored to Your Situation
“The most powerful force in the universe is compound interest.”
Albert Einstein
One of the foundations of successful long-term investing is using a tax free, or a tax deferred, investment account. By using a tax-sheltered account, it allows your interest income to compound (grow) monthly, or annually, without having income taxes deducted from it. The self-directed IRA account is one of the best tools available to assist you with increasing your retirement savings rapidly. Saving for retirement is a long-term process, but the sooner you get started, the more time your investments have to grow.
Promissory Note Loan Candidates for High Income
Promissory Notes Secured by Real Estate
Contracts for a Deed Secured by Real Estate
Promissory Notes Secured by Mobile Homes
Promissory Notes Secured by Vacant Land
Business Notes
Bank Investments Will Not Get the Job Done
Today, banks are paying from % to 1.5% annual interest on most savings accounts and on most Certificates of Deposit. In addition to receiving this very low interest rate, the bank investor must then pay income tax. The investor is left with a net yield, after-tax, of about % to 1.0%.
If your self-directed IRA owns well-secured, interest paying, loans that generate cash into your account on a monthly basis, you have laid the foundation for solid long-term growth. In today’s low interest rate environment, owning a well secured promissory note paying 6% to 10% is a great income investment-and it is tax fee or tax deferred. Your IRA account can become a strong force and ally in increasing your wealth.
Understanding the Numbers
Let’s look at a set of interest rate numbers from two points of view.
We will compare a bank interest rate to a note interest rate. Assume the bank pays 2% interest and the note pays 8% interest.
Look #1:The difference between these two numbers is: 6% (8% minus 2% = 6%)
Stated in words-an 8% yield is 6.0% larger than a 2.0% yield
Look #2: An 8% yield is equal to 4 times a 2% yield: (4 X 2% = 8%
Stated in words-a 2.0% yield is 400% of a 2% yield
As demonstrated by the above, the note yield differential is huge. The note yield is 400% of the bank yield.
An Example of the difference is shown below:
$10,000.00 @ 2% compounded over 15 years grows to $13,496.00
$10,000.00 @ 8% compounded over 15 years grows to $33, 095.00
Summary
If your investing goal is to accumulate income producing assets, the use of the promissory note as an investing vehicle should be one of your main tools. Over a long period of time, the compounding impact magnifies the annual income; and, since that income is tax free or tax deferred, it grows at an exponential rate. If you focus on growing the income stream in your self-directed IRA account by using promissory notes, you will find that the account’s total value has grown at a compounding rate.
- Idle money and idle men are both useless – they should be at work
- The creation of wealth is the art of making the correct investment over and over.
- The definition of a great investment is one that will generate cash income for many, many years.