One of the major disadvantages of transferring assets from tangible property to a future income stream in the form of a series of payments on a contract or Note is that, in the event of high inflation, you can't be certain of maintaining the purchasing power of the money you receive.
Conventional lenders got caught in this trap in the late 1970s and early 1980swhen high inflation rates rampaged across the financial landscape.
In an attempt not to have this happen to you, it's a wise idea for lenders who originate loans to build a hedge against inflation into their Notes and Contracts. This is done by finding a way, either directly or indirectly, to index both principle and interest to offset any inflation. At the same time, buyers who want to put inflation to work for them to build equity would do well to avoid indexed instruments.
Inflation is the bugaboo of all fixed debt instruments because the principal that is received in payments will buy less than the money originally lent.
One way to overcome the effect of rising interest rates and inflation is to use an installment contract that builds in protection for the seller. This resembles the old callable home mortgages that existed in the earlier years of the 20thcentury. The lender could demand full payment on these loans at any time.
Our indexed contract isn't that severe, but it is written only for a single year. After that time,the interest rate and the price of the property can be adjusted to market values. If the buyer prefers, he can either refinance the property and pay off the old contract, or sign the new contract with the new terms and start allover again.
To see inflation proof language to put in to your contracts, get Jack Miller’s ART OF THE DEAL Online Seminar MORE DETAILS HERE
