I get amused when I get calls from note sellers that will start the conversation by "warning" me they have already been offered 100% for their note, but want to know what I will give. (If you can get 100% face value for your note, why are you calling me or anybody else for that matter!!!)

When someone has been offered "100%" for his/her note, one of two situations has occurred. The first situation is that they have NOT been offered 100% for their note, but are trying to con me into believing they have found Sugar Daddy. Or perhaps they saw an ad or a flyer claiming "100% and Higher For Your Note", or maybe even received a quote.

I calmly point out that I cannot not pay 100% for a note under any condition, nor do I know of any note buyers that can and still stay in business for long. (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 have actually been offered 100% for their note, this usually means there is a split payment, or a partial involved in some form. 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/she will buy it. He/she 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 add this to 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)

N = 52
I/Yr = 8
PV = -36,654.29
PMT = $836.44
FV = 0

Subtracting the $30,000 you received from the PV of $36,654.29, there is really a $6,654.29 discount. In fact, it is approx an 18% discount. The point being THERE IS A 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, in today's market it is often 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.

These concepts are covered in THE NOTE PROFESSOR NOTEBOOK. Knowing how to use a financial calculator will ensure you know EXACTLY how much your note is being discounted.

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

If you have any questions or comments, be sure to contact me In the subject line, write ASK the PROFESSOR. I will try to answer your questions in the next Note Professor issue.

Remember, if you know of someone who has a note to sell, I will pay referral fees at the least, and will also split my profits if you would like to "co broker" a Note with me.

To forward this email to friends or business associates who have an interest in real estate, click the "forward button" at the very bottom of this newsletter

I have a Get a Note Quote web page that can be filled out and submitted for professional pricing. Check it out.

Tom Henderson /a.k.a. THE NOTE PROFESSOR .

Copyright © H&P Capital Investments LLC All rights reserved

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Note Newsletter and Archives
click here to subscribe and view the archives of past information packed issues through 2009. And be sure to forward this newsletter to a friend that would have an interest in Owner Financing and Real Estate NOTES.

Current ARCHIVES (end of 2009-2012)

Definition: Supply

The total amount of goods or services offered by potential sellers for sale at a particular time and at a given price.

Just as in the definition of "demand", (See Nov/2008 of THE NOTE PROFESSOR NEWSLETTER ) the term "supply" has a correlation with price.

Remember, price is nothing more than exchanging one good or service for another. The point being that something must be produced to exchange. Relative to today's events, apply this definition to the "supply" of money. Politicians have the false belief if the "supply" of money is increased, then demand will also increase. They err on three fronts.

First they try to equate the printing of currency as the equivalent of producing a good or service. Printing a dollar bill does not produce a good or service. It merely devalues the dollar. This is the true definition of inflation. Trying to solve the economic chaos, which was caused by government, by printing currency and pretending it is production is merely setting the stage for inflation to go into fast forward at some point in the future.

Second, politicians believe if money is taken from the productive ventures and redistributed to non- productive ventures, by some miraculous event, this is going to create jobs and solve all our economic woes. To use a real estate analogy, it would like taking all the income from your profitable rentals, and transferring the income to a large non profitable commercial venture.

Thirdly, the Federal Reserve and politicians do not have an understanding the function of prices in an economic system. Prices are a language that tells us what to produce, how much to produce, what to buy, when to spend, when to save etc. All of these variables are incorporated into a price system. Artificially setting the price of a commodity, and money is a commodity, the price system is distorted, which results in shortages of some sort, whether it be shortage of product or a shortage of buyers.

Applying this concept to the supply of money, the Federal Reserve has arbitrarily set the "price" of money to banks approximating 0. They are acting under the false premise that if they lower the price of money, and increase the supply of currency, demand will increase, and everyone will immediately start buying cars and houses.

The only problem is the "price" and "supply" of money are artificially being set by politicians and bureaucrats, not the sellers and buyers. As a result, we have a situation that is not supposed to exist: low interest rates and tight money. Add to this the fact that 3 month Treasuries were paying a negative interest, and it is plain to see the effects of the distortion of the by bureaucrats arbitrarily setting the price and supply of money has on the market. Something has to give somewhere. What will happen? I see interest rates rising. We shall see.

(As a side "note", pardon the pun, these conditions indicate that selling your note, especially partials, is a prime investment vehicle because of safety and high yields)

If you have questions, CONTACT ME. I will address them in future issues.

Copyright © H&P Capital Investments LLC
All rights reserved

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."
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You will learn at least one new usable concept to increase your profit in buying or selling notes and real estate.
Tom Henderson, author

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.