So they can go fishing and catch an 844 pound shark!

No, seriously, they sell them for 3 reasons:

  • 1. Access to their cash!
    • Sometimes there is a serious need (i.e. pay off credit cards, medical bills, or for a divorce settlement or retirement). 
    • Other times, there is simply a desire to .. purchase a dream home, take a vacation, buy a new car, start a business or put money into someone else’s venture.
    • And, then, in other instances people just want access to their cash for peace of mind. They don’t want to worry about liquidity issues, collection worries, or the finances of the person who owes them the debt.
  • 2. Yield/Interest
    • People also sell because they know that with cash in hand today, they can start earning interest or yield. They will oftentimes even sell their income stream for less than face value so that they can begin earning a yield.
  • 3. Inflation
    • Lastly, people realize that over time, the payments they receive today will drop in real value.

So, on the other hand, Why do people BUY income streams?

Buying future payments is a very profitable form of investing.

When investors buy future income streams, they do not pay face value and this equates to a high yield on their investment. Also, a nice perk with this type of investment is that they (usually) know in advance EXACTLY what that yield will be (provided the payments come in on time or are not contingency-based).  If they are contingency-based, as in the Cubs example below, this would be factored into the offer by the investor.

Buying income streams is very attractive to investors because it gives them the opportunity to invest their money profitably and relatively securely.

Check out the story on the sale of the Boston Cubs and the income stream their owner is selling.  Here’s a short excerpt:

“Whether Wrigley Field will be sold with the Cubs or separately is unknown. The neighborhood park with its ivy-covered walls is as much part of Cubs tradition as any player in the team’s history.

Donald Levin, the owner of the successful Chicago Wolves minor league hockey team, ticked off the questions surrounding the ballpark.

‘Do you own the field? Do you have to be out in case they renovate? Where are you going to play? What happens to all the income?’ said Levin, who is expected to make a bid for the Cubs. ‘These are more important evaluation questions than the contracts.’

Howard, the Oregon business professor, said an owner typically wants to control the venue where their team plays.

‘If you are paying that kind of money you want to be able to claim and control all income streams it will throw off,’ he said.” (Emphasis added.)

Perhaps the Cubs owner is tired of all the hassles that goes with running a major league club and, as noted above, would prefer to take a vacation and relax.  Sure, he will make a lot of money on the sale, but I imagine it will be far less than what he could make from the various income streams, tax credits and other benefits he would receive as the owner.

Suffice it to say, there will always be income streams available for purchase and investors will always be ready and willing to purchase them and hopefully I have been able to fill in some of the picture as to why that is so.

Until next post….Be Safe.. Debra

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