Many have a misconception in which they equate the face value of a note as actually having cash in the bank. Having this false belief, then trying to sell your note in the open market brings frustration when you, the Note Holder are offered something less than face value for your note. You will exclaim, "I have a good note which paying on time. I should get full value, right"? Let's look a situation.

For example, you sold a house for $105,000 with $5,000 down and carried a note for $100,000, for 30 years at 6% interest, with payments of $599.55 a month. Do you have $100,000 cash? NO!!!. You have a PROMISE to pay $599.55 a month for the next 360 months. This is NOT THE SAME AS $100,000 CASH!

A good analogy would be the Texas Lottery. As of this writing, the Lottery touts a jackpot of $4,000,000. Then in the same breath, the lottery commission lets you know the CASH VALUE is $2.5 Million. What was omitted is the fact that the $4 Million is paid out over 25 years. This is the same as a note. Is it becoming clear that the $4 Million Jackpot is not $4 Million Immediate Cash, but annual payments over 25 years? If you choose to take the cash value of $2.5 Million NOW, you have in essence sold your $4 Million "note payments" for a discount. In other words, the IMMEDIATE CASH VALUE of $4,000,000 paid over 25 years is not the same as $4 Million CASH.

If you put these figures into a financial calculator, you will find the "note buyer" is receiving a 4% yield. Not bad for a virtually guaranteed payment. Did you notice the discount? Pretty hefty, wasn't it? Why? Because the annual payments were 0 % interest, and the "note buyer" wanted a 4% yield. The 4% spread translated into a hefty discount.

Along the same lines, did you notice the small yield was reflective of the risk being taken. Being paid by the State of Texas has virtually no risk. The same cannot be said of an individual paying on a real estate note. "But Tom, if my note goes into default, you can foreclose on the property and get your money back", you say. You would think so, but reality tells a different story.

Take the $100,000 note in the above example. Not even taking into consideration the declining values of real estate, or melt down of real estate financing, if you are forced to foreclose, you are not going to get the house back in the same condition it was sold. One statistic shows there is an average of $12,000 of repairs needed on all foreclosed homes. This statistic does not include intentional destruction or vandalism. An investor told me he had to foreclose on a house, and his payors had poured cement down the toilette. Another prominent note buyer tells me it is not uncommon to find all the copper wiring, plumbing and carpet to be taken out of foreclosed houses. In buying promises to pay, all these factors must be taken into consideration. Remember, the Note Buyer is not buying cash, but promises to pay. If that promise is not kept, chances are the house is not going to be in pristine condition it was sold.

In my July 2007 Issue of THE NOTE PROFESSOR NEWSLETTER, I demonstrated how using owner financing to get a "higher price" is not the same as getting more money. I strongly suggest you revisit this issue to see and grasp the concept that a promise to pay in the future is not the same as cash in hand.

The point of this issue is to dispel the belief that a note is the same as cash in hand. It is not. It is merely a promise to pay in the future. This promise to pay is NOT the same as the face value of the note, but is related to the risk and interest rate. This is true whether the note is a $4 Million Jackpot paid out in 25 yearly installments or $100,000 note with 360 monthly payments. Both have CASH VALUES that are less than the face value.

If you are selling your property using owner financing, please contact me. I will help you structure your note to give it maximum value in today's market.

If you have a question on your note or a Note to convert to cash, contact me
I will be happy to discuss your specifics.


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Would you like to learn the hands on mechanics of how to broker notes? Bring a note to "co-broker" and as soon as the note is closed we will split the profits. Also I pay a referral fee for notes that are referred to me.

Tom will be on a panel discussing financing in today's market at Real Estate Meet Up on September 9th in Dallas. There is no charge for attending this group. When Tom is on a panel, things often get lively as he inserts current economics into the discussion, and does not sugar coat anything. If you have questions for Tom, be sure to attend.

ANNOUNCEMENT: It is with great pride to announce that Tom has been chosen to become a regular instructor at the prestigious Roddy Organization. As you know, the Roddy name is one of the most respected in the Dallas real estate market, and indeed the entire state. . Tom's first workshop will be held in Dallas on September 27th. Visit the Roddy website, www.Roddy.com, for Tom's scheduled classes, and other valuable educational workshops

Tom Speaks: Tom has been asked again to be a speaker at the national NoteWorthy Convention to be held Oct.2nd-Oct 5th, in Las Vegas.
His topic will be
"Making Obscene Profits with Small Money".

If you have not attended a Note Professor "How To Get Rich with Notes" class, be sure and purchase the Note Professor Note Book manual to enhance your knowledge of creative real estate financing and note buying and selling.

"I got your news letter. It was great, purchased your (Notebook) and it was awesome. I used your renter technique and it worked also. I am getting 41% return thanks to your expert advice. I have spent hundreds and not able to do any thing thru other gurus" Gary W. Garland, TX

"It blew me away what a powerful tool notes can be. Lots of great information, worth every penny! Highly recommended."
Jeff C. The Colony/Investor

"Your manual is short and straight to the point, it's rare to buy something today that gives you your money's worth. Thank you" Stephan B. Phoenix, AZ

GUARANTEE! You will learn at least one new usable concept to increase your profit in buying or selling notes and real estate.

By popular demand, THE NOTE PROFESSOR NOTEBOOK is now available in easy, downloadable E- book form for a the low, affordable price of $39.95. Other products are also available, including HOW TO MAKE OBSCENE PROFITS with SMALL MONEY, and GUIDE FOR SECOND LIENS. There is also a FREE download of CHECK LIST FOR OWNER FINANCING. Simply go to the NOTE BUYERS STORE. I can think of nowhere that you can find such information packed products at such incredibly low prices. We are still working out the bugs, so if you have any problems, be sure to contact me.

There is nothing since the last issue that gives any encouragement the financial melt down is in a final stage, no matter what the "experts" say. In fact, we have seen only the tip of the iceberg. These "experts" were the ones saying "it is only temporary" over a year ago. Remember, the price of real estate is directly proportional to the financing available, and financing is starting to dry up. The Federal Reserve auctioned off another $17 Billion to try to keep banks solvent. Because bubbles are caused by inflated credit, for the economic correction to be complete, look for more bank failures, as the inflated credit translates into defaulted loans of all types If one of the "biggies" gets into trouble, things could get real chaotic, real quick. Even small bank failures will put more pressure on liquidity. These institutional failures will require tax payer money to bail out not only banks, but the FDIC. With Fannie Mae and Freddie Mac being technically insolvent, it looks likely the Feds will have to bail them out. There just is not enough money to cover these losses. It is that simple. When Fed prints money, or the government borrows money, this has the effect of either devaluing the dollar, or taking money out of production that could be used for financing everything from houses to washing machines. All of these pressures indicate that interest rat es are artificially low, and will have to rise soon. This will cause real estate prices to fall, as well as note values.

Recommendation: Buy right and have a good exit strategy. If you purchase real estate, buy will all cash at extreme discounts, like foreclosures or TAX SALES, or get in with nothing down, with the ability to walk away with the minimum exposure. My favorite technique is to buy free and clear houses using owner financing. This gives the best of both worlds. You can dictate the amount you have invested in the property, and have control of your exit strategy. I will be discussing this and other issues on September 9th if you have questions. (See "Tom Speaks" above).
Copyright © H&P Capital Investments LLC
All rights reserved