100% For Your Note….IT JUST AIN'T SO - Continued

I calmly point out that I will not pay 100% for a note under any condition, nor do I know of any note buyers still in business that will. (The reason is if I buy a note at 100%, and the payor refinances or sells in the near future, I will have lost money) I then suggest that they fax me a copy of their note, and I will get back with a firm offer, in case their Sugar Daddy does not come through.

"Are you going to receive one lump sum, or some sort of spilt payments"?, is my next question. Here is where the truth comes out. If the note holders insist they are getting 100% for their note, this usually means there is a split payment, or a partial involved. YOU ARE NOT GETTING 100% OF YOUR NOTE!!!!! If you get nothing else out of this lesson, REMEMBER..when you are selling partials or split payments, your note is being discounted. Sometimes the discount is high…it is just hidden.

How much of a discount are you giving up….just ask your calculator?

In the section "How To Discount Even Cash Flows" of THE NOTE PROFESSOR NOTEBOOK, we learned how to determine the PV of a note. In this situation, we merely plug in the number of payments that are being bought into N, and solve for PV. This will tell us the amount the note is being discounted. (If you are serious about real estate investing, you must understand how to use a financial calculator. It is not that hard. All you need to know is which buttons to push.)

For example: Here is a $100,000 note for 20 yrs @ 8%. What is the payment? (Calculator Practice)
You need only $30,000. But you do not want a discount.

N 240

I /YR 8

PV $100,000

Pmt $836.44

FV 0

A note buyer offers to purchase your note without a discount and still give you your $30,000. Here is how he says he will buy it. He will purchase 52 payments for $30,000. At the end of 52 payments, the note will revert to you, with a balance of $89,489.69 still remaining. You will receive $30,000 now, and the balance of $89, 489.69 in 52 months for a total of $119,489.69. WOW!!!! No DISCOUNT!!! Right? WRONG!!!!

Since we know how to calculate for PV, let's see if there is a discount. (This is what the note with 52 payments @ 8% would look like)

52 8
$836.44 0

Subtracting this PV from the $30,000 you received, there is really a $6,654.29 discount. This is a hidden 22% discount. The same principle applies to split funding and other partial techniques.

Does this mean you should never sell your note on a partial, or split funding? Heavens, no. In fact, often it is more advantageous to sell a partial of your note rather than the entire note. Just be aware there is a discount, no matter what the note buyer will try to tell you.

For those who always look for the exceptions, yes, there could be a note with seasoning, a credit score of 720, and interest rate of 9%+ where you might find a buyer to give you full value, but these are far and few in between.

These concepts are covered in THE NOTE PROFESSOR NOTEBOOK. (click here)

I contracted out the right to sell THE NOTE PROFESSOR NOTEBOOK on EBAY, for a discounted price. Just type in Note Buying, and if there are any left, you can get a good bargain. If they are sold out, check back every week..She might put more up.

As always, consult an attorney or CPA before dealing in notes or real estate.

If you have any questions or comments, CONTACT ME (click here) I love questions and success stories.

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