H & P Capital Investments LLC
Issue 39
September 2008
Inflation Risk
by Tom Henderson
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As a panelist, on one of the real estate group meetings, I was asked how to protect yourself from the risk of inflation if you take back a note in order to sell your property.

I answered by pointing out that if you have a good note that has been paying on time, you should rejoice that you have a good cash flow coming in, at a time when there is uncertainty and even foreclosures. My answer was adequate, but not complete.

I did not have time to make another point that will also put the current real estate market more into perspective. It will also give us a chance for a little calculator practice.

For illustration purposes, let's assume you sold a house $100,000 with 0 down. You carried the note at 5% for 30 years. The payments are $536.82 P+I a month. You are a happy camper. Then all of a sudden inflation hits the market and interest rates rise to 9%. You are now upset because you are getting only 5% on your money. But is this a realistic picture? Let's look.

If interest rates rise to 9% and your buyer could only afford $536.82 payment, when we put this data into a financial calculator, we find the buyer can only afford a house price of $66,717. This means for the buyer to afford your $100,000 house at 9% interest, he/she is going to have to either put 34% down, or the price of your house is going to have to be reduced. (Is this not the situation we are facing now?)

Now comes the question. Which would you rather have; a $100,000 note paying 5% like clockwork, or a $66,717 note paying 9%. Although you are getting less interest, this is somewhat overridden by your having a $100,000 note instead of a $66,717 note.

From my point of view, in times of uncertainty, I would much rather have a good, reliable cash flow with a higher priced note, than a higher interest rate with a lower note value.

To recap, it you have sold your property using owner financing and the payments are coming in regularly, rejoice. Think of the alternative.

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

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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.

Contact Tom Note Buyer
Tom Speaks: October 2008

In partnership with, on Saturday, October 25th, Tom will be teaching an all day workshop on notes, owner financing, and how to apply these concepts in these times of turmoil. From learning how to achieve OBSCENE YIELDS with SMALL MONEY, to Zero Down real estate techniques, you will be able to put deals together you never dreamed possible. If you are serious about real estate investing, this hands on workshop is a must. For information click here.

Tom again has been asked to speak at the NoteWorthy Convention on October 2-5th. If you attend, be sure to look for Tom and introduce yourself. For more information click here

by Tom Henderson
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I want to emphasize if you have a note to sell, NOW is the time to sell it. Even though the Feds are still temporarily keeping interest rates low, interest rates are going to go up. When interest rates rise, the value of your note will decline. My recommendation is to learn to buy and sell property using owner financing. Do not depend on lending institutions as your exit strategy. In the 70s and 80s, those who knew how to use owner financing to buy and sell real estate prospered. Those who relied on lending institutions died on the vine.

It appears the financial house of cards is collapsing. The "experts" who only a few months ago were assuring us the worst is over, are now nationalizing financial institution, and crying out, "If Congress does not take tax payers' money to "solve" this crisis; our system is in a meltdown". The truth is we are already in a meltdown. I see no indication things are going to improve. Remember the axiom, the price of real estate is directly proportional to the financing available. The reality of the situation is money was loaned to borrowers who could not pay back the loan. Because of easy money, the price of real estate artificially increased. The bubble formed, and when it popped, prices of property start returning to its real price. This means property will only be sold to those who can afford it, as well as prices will decline.

The politicians' answer is standard; we need more regulation, as if the financial institutions were not regulated. The regulations did not work. One of the main reasons I am not optimistic is I hear Democrats and Republicans alike make statements like "The market does not work". Nothing could be further from the truth. What we are witnessing is the result of the market obeying economic laws; or in other words the market is working. We just do not like the results.

Remember, the laws of economics will always prevail. Is there any wonder the situation evolved into what we are experiencing when we have a financial system where the major player like Fannie Mae, privatize profits, but socialize liability Add to this the Federal Reserve artificially keeping interest rates at 1% for four plus years, and the recipe for a perfect financial storm was inevitable. This is not a free market system. I say all of this so you will not be fooled into thinking politicians and bureaucrats will step in and save us. We need to deal with not only the reality of the effects of politicians and bureaucrats triggering this meltdown, but also with the problems their "solutions" will cause.

When you hear "the market does not work", your reply should be " YES, it does. We are witnessing the market's response when politicians and bureaucrats get involved in the supply and price of money and finances".

As of this writing the players, the bureaucrats are now begging the politicians to bail them out. The key phrase that is most important is "the bailout will be LESS PAINFUL than the alternative". They have painted themselves into a corner. Without a bailout, banks will fail. With the bailout, we have high inflation, devaluing of the dollar and high gas prices, which could well lead us into a "stagflation" scenario.

Paulson and Bernanke KNOW what lies ahead. The government is going to have to print or borrow money to "solve" the problem they caused. The government's printing and borrowing money will lead to inflation and higher interest rates. The extent of the inflation is not known. I can only say the rates we experienced in the 70s and 80s are not out of the question. We may very well fall into an inflationary recession. Higher interest rates means the price of houses will have to decrease or banks require more down payment. Interest rates are going to rise, plan on it

After saying all of this, from an investment standpoint, it is not beneficial to dwell on the causes, but rather to have a plan of action on what is happening now. If you want to sell your note, sell it now. If you want to refinance, do it now. More importantly, you need to educate yourself on the different ways you can use owner financing to increase your wealth. Exit strategies are more important than ever. Understanding owner financing and notes is a must. Times have changed, you must change with them, or die on the vine.
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All rights reserved


Tom Henderson
H&P Capital Investments LLC