What is Face Value?
When I am investing my Self Directed IRA money I make extra sure I know what the Face Value is of the Note I’m interested in buying.
Face Value of a Note is a pretty simple idea. It’s basically the value of the Note when it was originated or in very simple terms the amount printed on it. On the Top of the Note it will say FOR VALUE RECIEVED _________. It’s the Number printed in the line that is the Face Value.
However if the Note has been paid for a while the Face Value and the Actual Value can be way different. You certianly want to know the amount of money you are buying the Note for, and generally it won’t be for Face Value. This is where you can lose serious money if your not sure of what you are buying. Here’s an example:
I sell you a car for $10,000 at 6% interest and payments of $200.00 a month for 58 months. I keep the Note for my Self Directed IRA. In the very beginning (month 1) the Face Value is $10,000 because you haven’t paid 1 month yet.
After paying for 55 months the balance or Actual Value of the Note is $531.13. That’s how much there is left to pay to the Note Holder but the Face Value on the Note still says $10,000.
Using your Financial Calculator you can figure out what the difference is between the Face Value and the Actual Value of any Note you are considering buying for your Self Directed IRA.
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