Partials…The
Good, The Bad, and The Ugly - Continued
Another
beneficial scenario of selling a partial, or
portion of a note, would be someone who has a $100K note,
and needs only $20K cash, but does not want to take
a deep discount to sell the entire note. The seller could
then sell enough monthly payments to get him his $20K, and
at the same time have the note revert to him in the future,
often in a three years or so. WIN/WIN for note buyer and
note seller. Happens all the time. Remember
THE
MORE DOWN PAYMENT, THE MORE MONEY IN YOUR POCKET.
In
PARTIAL TO PARTIALS lesson in the NOTE PROFESSOR NOTEBOOK,
I illustrated a simple way for sellers to get their money,
the note buyers achieves their yield, and all walk away happy
campers. However, in other lessons like How
To Double Your Yield with half and half and FOR
THE GREEDY ONLY, I show how you can easily be deceived
into thinking you are getting 100% for your note, or there
is no, or little discount. If you have read these, you
will not be one of the suckers. Here is the only thing
I want you to get out of this issue
.NO NOTE BUYER
PAYS 100% FOR A NOTE, (unless they are stupid). But there
are those note buyers who will try to deceive you into thinking
you are getting 100%. Anytime a note buyer advertises 100%
for your note, you can rest assured there is some sort of
split payment or partial involved, SO BE PROTECTED.
Let'
take a quick look at the example, in Double
Your Yield With Half and Half where a note seller
has a note balance of $85,562.87 being paid off at $660.39
monthly for 300 months @ 8%. The note buyer wants 16% yield.
If you bought the entire note, you would pay $48,597.61. OUCH!!!!!
Deep discount. Most note sellers would not take this deep
discount. Here is the way some note buyers will present their
offer to infer there is no discount. They will say, "I
will give you 50% of the note, for ½ of the payments.
In other words, the note buyer will pay $42,781.44 for the
right to receive the next 150 payments. At that time, the
note reverts to the seller. Another version is "I
will give you 100% for your note, 50% now, and 50% in 150
months. Sounds like there is no discount, right
.wrong.
For
those following on the calculator, what is the note buyers
yield? In the first example where the note buyer is buying
50% of the note for 50% of the payments, what is your yield
if you is receive $660.39 for 150 months, and paid $42, 781.44
for the note?
bingo
15.98%. What is
the note balance after 150 months
.$62,495.60.
Here
is where the sleight of hand comes in, and the discount becomes
noticeable. If he were to give $42,781.44, for the remainder,
you can see that is around a 30% discount. I cannot
go into the details in this issue, of how much of a discount
actually takes place, I just want you to put your hand
on your billfold if anyone says, he will give you a 100% for
your note.
In
For
The Greedy Only, the sleight of hand is even more
hidden. It, too, takes advantage of the complexities of the
time value of money to deceive sellers into thinking there
is no discount. But this one is more subtle. I will go
into more detail on this one in future issue.
Does
this mean that if you sell a partial of your note, you are
getting ripped off? Heavens, no. In HAPPY
TAILS TO YOU, I show you how you can get free notes
for your retirement, using partials. When I sell my notes,
I will always ask first, how much will the buyer pay for a
portion of the note, instead of the entire note. There are
many instances where I can sell ½ of my note for practically
the same price as the whole note. But Professor, how can this
be? It is just the wonders of the compound interest
and the time value of money. It is all discussed in detail
in THE NOTE PROFESSOR NOTEBOOK. There are some other
cautions on partials that I will go into in a future issue,
but this is all I have time for now, and my fingers are getting
tired. Again, this does not mean you should not sell a
portion of your note, just be aware, you are not getting
100% and there is A Discount. By being educated, you will
know, not only how to buy a partial, but how not to get ripped
off.
HEAR YE, HEAR YE: I have put THE NOTE
PROFESSOR NOTEBOOK on Ebay. So those of you who want
to bargain, go to www.ebay.com
In the SEARCH SECTION, type "NOTE
BUYING". This should take you right to the
bidding. Good luck.
Please
contact
me with your questions or comments. I will get back to you,
I promise.
Take
care,
Tom
Henderson a.k.a. THE NOTE PROFRESSOR
Copyright
© H&P Capital
Investments LLC All rights reserved
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