Investing in Bank Notes: What You Need to Know

What Are Bank Notes?

Bank notes are unique papers that say someone owes money. They’re like IOUs but for significant amounts of money. When you buy a house, you usually get a bank note called a mortgage. This means you promise to pay the bank back over time.

How do Banks Make Money?

Banks are consistently making money by selling mortgage notes. That’s why they have such significant buildings—it’s a great way to make money for a long time. But guess what? You can do it, too!

Be Your Bank

If you’ve bought a house or some land, you can be like a bank. You can sell, buy, or make new notes. It’s like being your bank!

Why do Banks Sell Notes?

Sometimes, banks sell their notes to other people. This happens often. You might have seen this if your home loan suddenly changed to a different company. The bank probably made money by selling that note.

Why Would Someone Buy a Note the Bank Doesn’t Want?

People who invest in real estate often buy notes from banks. Here’s why:

They can buy the note for less money than it’s worth.
They don’t have to take care of the property.
If the person who owes money doesn’t pay, the note buyer has choices:
- They can take the house and rent it out or sell it.
- They can change the loan to help the person pay it back.

How Much Can You Save?

Some people can buy these notes for half the price of the house—that’s a big discount!

Why Do Banks Sell Bad Notes?

Banks sell sour notes for a few reasons:

They want to make room for new loans.
They need to follow rules about how much money they have.
It’s easier than trying to take the house back.

For people who buy these notes, it can be a great deal. They can get houses for much less than buying them at a sale.

Helping People Stay in Their Homes

Sometimes, when people buy these notes, they can help the homeowners. They might change the loan to make it easier for the homeowners to pay. This can be good for everyone:

The homeowners get to keep their house.
The note buyer gets paid back.
The house stays lived in and taken care of.

What Could Go Wrong?

Just like when you buy a house to rent out, some things could go wrong:

The house might lose value.
The house might need a lot of fixing up.
The person living there might not pay.

But when you buy a note, you’re just like the bank. If someone doesn’t pay, you can take the house back.

A Special Way to Save Money

One cool thing about buying banknotes is that you can do it with special savings accounts. These are called IRAs or 401(k)s. This can help you save money on taxes.

How Does It Work?

Here’s a simple example:

Someone sells a house but lends most of the money to the buyer.
The buyer has to pay it all back in 5-10 years.
If the buyer can’t pay, the seller can return the house and sell it to someone else.

The only risk is if the house sells for less than what’s owed.

Making More Money

Once you buy a note, you can act like a bank. You can lend money to people who want to purchase homes, charge more interest than regular banks, and make more money.

Start Small and Local

If you want to try this, start in your town or city. It’s easier to keep an eye on things close to home. Ensure you have good helpers, like lawyers and title companies, to do the hard stuff for you.

Understanding Banknotes: Money You Can Hold

What Is a Banknote?

A banknote is a unique piece of paper that’s worth money. It’s like a promise that says, “I’ll pay you this much.” Banknotes are what we usually call cash or paper money.

How Banknotes Started?

Long ago, people used gold and silver to buy stuff. Then, paper money replaced these valuable things. At first, paper money was backed by gold and silver to make people trust it.

Who Makes Banknotes Now?

Only the government backs banknotes, and only the Federal Reserve (a particular government bank) can make new banknotes and coins in the United States.

Banknotes Around the World

Every day, billions of people use banknotes to buy and sell things worldwide.

The Gold Standard

In the past, people in the U.S. could trade their paper money for gold or silver. But in 1971, the government stopped doing this. The money is valuable because people believe in it, not because it’s backed by gold.

Different Names for Banknotes

People call banknotes different things, like currency notes or bills. They all mean the same thing – paper money you can use to buy stuff.

New Types of Banknotes

Some countries are trying out new kinds of banknotes made of plastic-like material. These are called polymer banknotes. They’re harder to fake and more accessible to clean than paper ones.

Good Things About Polymer Banknotes

They’re safer from people trying to make fake money.
They last longer, so they don’t need to be replaced as often.
They’re waterproof and don’t get dirty quickly.
They’re better for the environment.

Not-So-Good Things About Polymer Banknotes

They cost more to make at first.
They can be slippery and hard to count.
They might not work in some vending machines.

Are Banknotes Different from Regular Money?

These days, banknotes are just another word for paper money. Banks could make their own paper money long ago, but now only particular government banks can do that in most countries.

How do you tell if a banknote is genuine?

Authentic banknotes have unique things that make them hard to copy:

Raised parts you can feel.
Hidden pictures you can see when you hold them up to light.
Special paper with tiny threads in it.

Each country has its way of making sure its money is real.

What to Do with Damaged Money?

If your U.S. money gets torn or damaged, you can send it to a particular government office. They’ll replace it with new funds for free.

The Future of Banknotes

Right now, banknotes are the primary way we use physical money. But in the future, we might use more digital ways to pay for things instead of paper money.

Remember, even though this stuff can be complicated, learning about money is essential. The more you know, the better you’ll be able to handle your own money when you grow up!