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


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