With interest rates at all-time lows, it’s hard to find a reliable investment with a solid return. This is what makes structured settlements so tempting. 2010 was a great year for most structured settlement buyers…so is this a business you want to get into?
Rate of Return. The real money from buying a structured settlement comes from the discount rate, which is essentially reverse interest that the buyer charges the seller. It is a fee for the annuitant to get his money ahead of schedule. Discount rates in the double digits are common, and that’s what covers your overhead and gives you a rate of return to brag about.
Caveat: All states have structured settlement statutes that provide for the transaction to be approved by a court. The seller – and you – may even have to show up. A judge is going to look at the transaction and decide whether it’s in the best interest of the seller. A too-high discount rate might doom your transaction. In 2010, for example, a New York court questioned a discount rate of 20%.
Cash Flow. Borrowing is cheaper than ever, if you can secure it. Get your hands on enough cash, for enough time, and you’ll have the ability to buy out several settlements and let the money come in.
Caveat: Nothing lasts forever. Should the Fed start raising rates – and a healthier economy might mean just that – the cost of borrowing will go up for you. If you can’t raise your discount rate, something else will have to give.
Motivated Sellers. The current economic slump has meant that many annuitants might be facing foreclosure or job loss. A big medical bill, a car accident, or some other unpleasant surprise can make the pressure to get cash now absolutely unbearable. These sellers are ready to go, and will likely accept whatever deal you offer.
Caveat: Again, courts have to approve the sale, so taking advantage of distressed annuitants won’t serve you. Besides, with services like QuoteMeAPrice at their disposal, annuitants can choose between competing offers.
The Process. Every state has a legal process for the sale of structured settlements. Become familiar with, and follow, the rules, and you’ll know what to expect.
Caveat: The process also allows for a “cooling off” period for the seller; if they don’t like your deal, get a better offer, or just plain change their minds, all bets are off. Also, an increasing number of structured settlements prohibit their annuitants from selling. And there is always talk in the industry about new and tougher regulation in response to reported abuses by factoring companies.
If you need help selling your structured settlement, annuity or lottery payments,
contact us today. We are here to answer your questions and help you obtain the
highest possible price for your payments.