Financial Mastery Workshop Handout

What Is Paper?

Throughout the nation, the term paper is generally defined as anykind of debt instrument where one party is obligated to pay another.Paper comes in may forms, many of which we won't deal with inthis course such as, structured annuities, lottery winnings, viatacals,company receivables, etc.For our purposes, paper is defined as any debt instrument securedby real estate and may also be referred to as a note in some cases.All of the following terms are applicable, including some notmentioned here:

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Mortgage

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Deed Of Trust (AITD)

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Land Contract

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Land Installment Contract

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Contract For Deed

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Agreement For Deed

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Real Estate Contract

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Bond For Deed

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Wraparound Mortgage

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Lien

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Judgment

What Is Discounted Paper?

Almost anyone who buys an income stream will pay less then theface value at the time of purchase. This practice is called discounting.By discounting the present value of a note, a buyer can raise theyield or return on an investment to match their requirement. On the otherhand, if the note buyer were to pay the full face value of the note, thereturn is equal only to the interest rate stated within the note.From the seller's point of view, it comes down to receiving theirmoney over time as they agreed upon the creation of the note orconverting it into cash now. (

Think of winning the lottery…)

The tradeoff for the note holder getting cash

now

is they mustusually accept less than the face value (or remaining balance) on thenote. Sometimes the discount is very small and other times it is large.The determining factors are the terms of the note, the quality of thecollateral, the requirements of the buyer and what the seller is willing toaccept.