Note Professor Newsletter

Gift Wrapped (Continued)

Instead of carrying back a second of $20,000 @ 10%, you wrapped your second lien around the $70,000 for the same 180 months. The buyers now are paying you 10% on $90,000 instead of $20,000. This will increase your yield to a whopping 19.09%. Do you like yields like that? I know I do.

Now let's go a little further and play some games with the terms of your wrap. It has been said that notes are a depreciating asset. To large extent this is true…unless you are armed with knowledge of the time value of money. Let's take this example and tweak it. Suppose instead of having your wrap note exactly coincide with the time of the underlying, you extend the terms to 360 months instead of 180 months. What will be the affect of your equity in the wrap as time goes by.

Without boring you with all the calculations, I will just hit the high points. (If you want to check my work, then get out your calculator. It is merely a problem of finding loan balances.)

When we start out, you have $20,000 equity in your wrap. $90K minus the $70K underlying. How much equity do you have at the end of 2 years, 5 years, and 15 years?

24 months
Wrap Note Balance: $88,947
Underlying Note: -$64,328
Equity $24,619

60 months
Wrap Note Balance: $86,917
Underlying Note: -$54,189
Equity $32,728

180 months
Wrap Note Balance: $73,498
Underlying Note: -$00,000
Equity $73,498

WOW!!!! How can this be? My equity in debt is growing instead of depreciating!!!!

Are you starting to catch on? By tweaking your wrap, you can increase your equity and your security. Why? Because the underlying note is being paid off quicker and at a smaller interest rate than your wrap. The result is as long as there is an underlying loan, your equity increases. Great technique for those who like security, or believe the loan is going to be paid off in an average of 5 to 7 years. What does this do to your net worth? That's right, your net worth increases.

Like always, what I want you to see, and grasp, is the use of the concept of the time value of money to increase your wealth. Knowing how to manipulate the variables of a note, can greatly increase your wealth. You have just seen one example.

If you have questions or comments, please contact me. Your feedback is helpful in topics to be discussed.

Because of demand, Tom will be repeating his class on owner financing, on Saturday June 24th and Sunday June 25th, on HOW TO GET RICH WITH NOTES. This class is limited to 20. For under $200, you will learn what a similar "boot camp" in Austin teaches that costs thousands. You will also get THE NOTE PROFESSOR NOTEBOOK as a learning tool. This will be the last time this course will be offered this year, at this price.

Go to www.DFWREIN.com for details. Or call Joele at (972) 671-7346