I received an email from a note owner who had just come into a financial dilemma. She had moved into her new home, and still had her vacant home for sale. She was in a double bind. She needed to sell her note to raise cash for a family emergency; yet she needed to continue to keep the income from the note payments in order to be able to make two house payments. She was positive that she could sell her property within the next 6 months. "Is there anyway you can help me?" she asked. "You Betcha", I answered.

This scenario is a textbook case for using what is called a "reverse partial" or "partial pass through". Here is how it works. I will purchase the note, and the note seller will continue to receive payments, for say six months. This technique will give the note seller the immediate cash needed, while at the same time allowing her to receive payments until her house sells. How in the name of Hewlett Packard do you calculate the purchase of a note under these circumstances?

It is just a matter of knowing that calculating the time value of money is nothing more than knowing the five variables below, and how to use them. Here is what the note looked like. (For those who have taken my class, I always make PV negative because I am assuming I am going to buy the note)

N = 348
% = 10
PV = $-49,722.54
PMT =$438.79
FV=0

Now let's start calculating and assume we want a 12% yield. To calculate a reverse partial, this is a two part calculation. First let's determine what $438.79 for 342 months will be worth to receive a 12% yield. (The 342 months or the number of months I will receive payments. Remember, the note seller is going to keep the payments for 6 months)

N =342
% =12
PV = $-42,419.02
PMT = $438.79
FV=0

But hang on. I will not receive these payment for 6 months. How do I determine PV? So simple, even a caveman can do it. All I have to do is put the $42,419.02 into FV, and make PMT 0. Next I need only ask my friendly neighborhood calculator to tell me what the PV $42,419.02 is worth in 6 months @ 12% yield. Let's look.

N =6
% =12
PV = $- 39,960.64
PMT = 0
FV=$42,419.02

This is the same as saying if I want 12% yield on a cash flow of $438.79 for 342 months, but the cash flow will not start for 6 months. What would I pay?
ANSWER: $39,960.64

The seller gets the best of both worlds from a reverse partial technique. Immediate cash, plus being able to receive her payments for another 6 months.

This technique is also good when the payors' credit is borderline, and the note buyer wants to reduce his exposure, meaning risk. Reverse partials can extend from 6 months to a max of two years.

This was an exercise to not only give you calculator practice, but also to get your mind working as to the endless concepts that can be applied when purchasing or selling cash flows.

If you know of someone who has a Note they want to convert to cash, remember me. I do pay referral fees.

Got questions or comments, be sure to contact me at It is from your feedback that I get topics for my news letter.

MERRY CHRISTMAS
and HAPPY HOLIDAYS
Tom Henderson
a.k.a. THE NOTE PROFESSOR
Copyright © H&P Capital Investments LLC
All rights reserved

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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.

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I was working on the December newsletter and asked one of my favorite readers to help me by suggesting a topic. She replied, "Talk about what you think the politicians should be doing that they aren't!  Seems there is a lot that is happening at local, state and national levels. They all just want more taxes to do more with. We have got to cut some things first! Just my opinion but I am seeing it at all levels".

Her reply gives us great insight into why we are in economic chaos. Her comment, while true, addresses only the symptoms of our troubles, and not the cause.

Tom's Economic Axiom: "When wealth redistribution has been deemed moral and sustainable, the only issue for politicians is to decide which group is going to be plundered and who is to receive the plunder."

Is there any doubt the political debates now center on which group is going to be taxed and which group that happens to be political favor at the moment is to receive this redistributed wealth.

Many politicians will shout "We need to limit the size of government and cut spending." This is a fantasy of ignorance at best, and political hypocrisy at worst. Until it is acknowledged that wealth redistribution is both immoral and unsustainable, how can the size of government be limited? Wealth redistribution DEMANDS larger and larger government no matter which party is in power? How can spending be curtailed when we are operating in an economic system that promotes spending and "spreading the wealth" to everyone from two bit dictators to large corporations?

The "Fiscal Cliff" debate is a case in point. What a dog and pony show! Do you hear either side challenging the system of wealth redistribution? NO! The debate has digressed to which group is to be taxed and which group is to receive the wealth of others. Is there even a challenge to the leadership of the Republican Speaker who is actually promoting wealth redistribution? NO! The Republicans are "supposed" to be for smaller government, yet at the same time they elect as its leader a person who actually endorses a system of wealth redistribution. How can our economic dilemma be solved, when our leaders not only condone, but also advocate the economic system that has brought us to this point by their actions.

Economic Axiom: Consumption cannot exceed production.

No matter what the outcome of the Fiscal Cliff debate, or what "compromise" will result in the meaningless negotiations, it will not matter. Both sides will claim victory, stating this is not the best deal, but "for the good of the country" it will avert going off the fiscal cliff. However, neither side addresses the fact that consumption cannot exceed production. We are already over the fiscal cliff. We are consuming more than the ability of producers to produce. Neither side will admit it.

We are about to witness a point in history where a once free market society has decayed into the end game of a collectivist system. It needs to be said again: consumption has exceeded production.

Look for the word "sacrifice" to be used more and more by both political parties. One side will apologetically decry, "Some are going to have to sacrifice and pay more taxes", while the other side will sorrowfully lament that others are going to have to receive less and less. By "sacrifice", our politicians mean you and me, not them, make no mistake. Their pensions, perks and salaries will remain intact. But such is the nature of a political body governed by the concept of wealth redistribution. It is an inherent symptom of wealth redistribution whether that system be in Russia, Cuba or the United States.

In last month's issue we examined how the Pilgrims were confronted with virtually the same problem our nation, and indeed the world, is facing today-Consumption was exceeding production. Why? Like our present system, the Pilgrim's economic system was based on wealth redistribution. However, unlike now, the leader William Bradford, understood it was the economic system that was the problem, not that individuals were being taxed too much, or the colonists were receiving too much. As such he did not attack the symptoms, but rather the cause and converted to free market principles. The result was immediate abundance.

If only our politicians of today had as much wisdom as William Bradford, there would be great cause to be optimistic. However, with our politicians debating who is to be taxed and who is to receive the tax, it is evident both sides believe wealth redistribution to be both moral and sustainable. With this mentality, there is little room for optimism on the economic front. Keep your powder dry!

At the same time, this is the Holiday Season. Be joyful and enjoy with your loved ones and family.
Merry Christmas,
Happy Hanukah,
Happy Holidays and a
HAPPY HAPPY New Year.

If you have a question or comment, please CONTACT ME. It is from your feedback that I get many of my topics.

Remember, if you know of someone who has a note to sell, I will pay a referral fee, or split my profits with you

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

Copyright © H&P Capital Investments LLC
All rights reserved