For Your Note
.IT JUST AIN'T SO - Continued
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.
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.
much of a discount are you giving up
.just ask your calculator?
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.)
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.
I /YR 8
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!!!!
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)
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.
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.
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.
concepts are covered in THE NOTE PROFESSOR NOTEBOOK. (click
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
always, consult an attorney or CPA before dealing in notes
or real estate.
you have any questions or comments, CONTACT ME (click
here) I love questions and success stories.
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