Because rehabbers and flippers are just now getting to their accountants to complete their taxes, April 15th is traditionally an opportunity for note investors to make obscene yields with very little money. Why? Because often a rehabber or flipper will purchase a property, then be forced to sell using owner financing. It is only when the rehabbers bring their information to their tax professional do they learn that in the eyes of the IRS, the note the rehabber took back is considered cash, and they owe taxes as if they received cash. The result is the rehabber has a note, but no cash to pay Uncle Sam.

Frantically, the rehabber will call the Note Buyer NEEDING, not wanting, to sell their note just to pay their taxes. The rehabber is then shocked to find out the discount is great, especially since all the rehabber needs is to raise enough money this year to pay taxes. Is there a win/win solution? If you know the principles of the time value of money, of course there is a solution.

There is a technique I call THE TEN FOR TWELVE. In a nutshell, you as the Note Buyer will offer to pay the rehabber the sum of ten payments for the right to receive twelve payments. For simplicity, I am going to use a payment of $1,000 PI as an example. You would offer the rehabber $10,000 for the right to receive the next twelve payments, which total $12,000. At the end of a year, the note reverts back to the rehabber, with very little reduction in principal. Is this not a WIN scenario for the rehabber? He/she will receive enough money to pay off his/her taxes, while at the same time not having to take a huge discount on the note. How do you, the Note Buyer, come out? Let's look.

All we need to know in this method is the monthly payments, which for example purposes I will use $1,000. You will be purchasing 12 payments for $10,000. Hence, the name Ten For Twelve. Now, a little calculator practice.

N = 12
I/YR = ?
PV = -10,000
PMT = 1,000
FV = 0

Now, all we have to do is solve for I/YR? How did the Note Buyer do? WOW! A whopping 35.07%. The reason the monthly payment is all we need is because no matter what the monthly payment, or the balance of the note the yield will always be 35.07%.

I also call this technique The Perpetual Partial©. Why, because in month 11, I go back to the rehabber and explain to him/her that the note is going to revert to him/her in a month. My question to the rehabber then becomes, "Do you want to do it again?". Which would you choose? $1,000 monthly payments for a year, or $10,000 CASH NOW. More often than not, the rehabber chooses to sell another 12 payments. I will let you play on your calculator with different scenarios, but you are going to find the TEN FOR TWELVE technique offers the rehabber several options to receive lump sum cash, while at the same time enjoying very little reduction in principal.

Moreover, you as the Note Buyer will enjoy an "obscene yield" on your investment. What is your risk? Remember, if the note goes into default, you only have to recoup your $10,000 plus expenses. Not much risk at all, is there?

Is there a way to use the Ten for Twelve technique and not use your own money? Yep! However, there is not enough time or space to go into your other options in this newsletter. I do discuss how you can do this deal with NO MONEY OF YOUR OWN, in THE NOTE PROFESSOR NOTEBOOK and HOW TO OBTAIN OBSCENE YIELDS WITH SMALL MONEY article.

However, the point of this article was to point out that tax time is a good opportunity for Note Buyers to solve a rehabber/flipper's tax problem without forcing them to take a deep discount, while at the same time the Note Buyer will enjoy "obscene yields" with small money and small risk. All you need is to be armed with the knowledge of the concept of the time value of money.

I am in the process of putting together a Note Workshop to be given in Dallas in March 2013. This technique, along with how to enjoy yields into the thousands (Yes. You read it correctly. You will be amazed at the simplicity), as well as how to buy and more importantly exit properties using seller financing. If you are interested in attending, or have a topic you would like me to teach at this workshop, please CONTACT ME.

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

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

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Attempting to consume more than what is produced is a natural result of abandoning free market concepts, regardless of which political party is in power. Ignoring economic axioms is the prime factor of why America, and indeed the world, is in such economic chaos. Politicians will take several avenues that tend to hide the fact that economic truisms are being literally tossed aside. The sequestration fiasco is a case in point.

To begin, let's acknowledge the fact that sequestration IS NOT a cut in spending. After all the "adjustments" there will actually be a $110 billion dollar increase. The lesson learned is a cut in growth is not the same as a cut in spending. The politician's, from both parties first line of defense is deception. Neither party acknowledges that "cuts" in any budget are not true cuts. Instead we are being bombarded with "It's Obama's fault" or "No! It is those evil Republicans fault". At a time when the news media is obsessed with sound bites of irrelevant rhetoric, nobody is bringing up the fact that consumption cannot exceed production, and the only solution is to return to free market principles.

Oh, it is true enough that Republicans will state they favor "smaller" government. As was pointed out in previous issues, it is impossible to have smaller government when the economic system is based on wealth redistribution and collectivism. The Republicans want to keep the same system of economics, but make government smaller. It cannot be done.

Collectivism/statism demands a large bureaucracy to keep the political apparatus functioning.

On the other hand, Democrats will tout they favor "smarter and common sense" government. This is laughable. Who has ever accused a politician or bureaucrat of being smart or having common sense? It is the government "collective wisdom" that has digressed our once rich economy into the current status where government consumption is exceeding our ability to produce.

Another method politicians use to obscure the fact that consumption is exceeding production is to distort history and/or continue to espouse economic myths. Two similar statements will demonstrate this method.

One of the network's pundits is on the air touting "It was government spending that brought us out of the Great Depression". I have written several articles debunking this myth. I will briefly hit the high points here.

One should immediately ask, "If the Great Depression lasted over a decade, and government spending was at previously unheard of heights, how can you say that government spending got us out of the Depression?" The short answer is government spending was paramount in not only extending the Great Depression, but also causing it to go deeper.

Some will say that WWII and the money government spent on the war effort got us out of the Depression. Not true. WWII did not raise the standard of living of Americans. Ask the service men and women in the armed forces who endured not only the horrors of war, but freezing cold, scorching heat, malaria, shortage of food, and being forced to leave their families and loved ones if their standard of living increased. Or ask those on the home front who had to ration food and clothing, along with other amenities to sacrifice for the war effort. This does not take into account their constant living in worry and concern of their loved ones on the battlefield. Does this sound like an increase in the standard of living? Moreover, look what happened to our standard of living when the war ended and government spending decreased. Did we not experience tremendous economic growth in the 50's?

Along the same lines, there was the argument that the decline in economic activity in January was due to a decrease in military spending. We are back to the first paragraph where there was NOT AN ACTUAL CUT, but rather a decrease in the growth. That put aside, the implication is that if government does not spend the money, it is not spent. Remember: ALL money is spent. This is just a ridiculous argument, but still is perceive to be true by many.

Last, but not least, I read where one "economist" remarked how austerity in Europe is not working. With all the government cuts, it appears their economy is not improving. I will remind this "economist" that he is omitting one important factor. While it is true many European economies are not improving with austerity; what is not mentioned is these European countries are NOT LOWERING TAXES. In other words, even with cutting spending AND raising taxes, these countries cannot balance a bloated budget. Continuing to tax, while cutting government spending is still a form of consuming without producing. This is not a good recipe for economic recovery. Why? Because CONSUMPTION CANNOT EXCEED PRODUCTION.

Conclusion: Sequestration is another red herring that hinders our examining the root of our economic problem: which is we have abandoned free market concepts and adopted collectivist/statist principles. Engaging in the useless debate of who caused the sequestration, or cutting only 2% of the budget will not lead to drastic uncomfort, or taxing the rich is the right or wrong thing to do is only adding to the problem by not addressing the real problem: CONSUMPTION CANNOT EXCEED PRODUCTION. When an economic system is based on collectivism and not free markets, consumption exceeding production is the result. Until we return to free market concepts, neither winning political debates nor good intentions will return us to prosperity.

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