For those who have taken my workshops, you know I am not a fan of balloons. Why? Because both the note holder and payor live under the illusion that in three years or maybe five years, some miracle will come to pass where the property can be refinanced and everybody will live happily ever after. This is a fantasy. If the payor cannot obtain financing now, why would he/she be able to secure financing in the near future? THE NOTE PROFESSOR NOTEBOOK outlines several methods to bust balloons. Below is a combination of two techniques.

Recently one of my students contacted me about a property she was very eager to purchase using one of my seller financing techniques. However, the seller was adamant about having a three year balloon. Wisely, my student was reluctant to commit to a balloon because she did not know what the interest rates would be, nor if there would even be money available to refinance investment properties. She asked if I had any suggestions because she really wanted the property.

The property was a duplex at an extremely good price. The Note was at 5% with the seller wanting a balloon of $125,000 due in three years. Not four years or five years, mind you, but three years. I asked my student to find out why three years was the magic number. She found out that in three years, the seller had a balloon payment of $27,000 due, and would need money to make that payment. I asked my student how much could she come up with in three years. She answered she has $35,000 now that she would put aside. I know some of you are way ahead of me.

Here was my suggestion. Since my student did not know what the interest rates, nor the availability of money for refinancing investment property would be in three years, why not structure the Note to take advantage of all the possibilities? She agreed to the balloon ON THE CONDITION she could obtain financing of $125,000 at 5% for at least 10 years, with closing costs not to exceed $1,000. If she could not obtain financing, she would pay down the loan by $35,000, and the seller would "refinance" the remaining $90,000 amortized over 30 years with a ten year balloon.

The seller accepted eagerly. All were happy. The seller got rid of a property he did not want. Not only that, but the seller would be receiving the $27,000 he will need in the future, PLUS $8,000 to put in his pocket. My student purchased an outstanding property at an excellent price with good terms. If the economy is such that she can secure financing from an institutional lender at favorable terms, she can do so.

However, should interest rates rise above 5%, the seller will refinance in three years after my student makes a $35,000 principal reduction, which she believes she can easily do. (As a side note, we discussed her putting more down up front, and thereby eliminating the balloon. She chose to reduce the principal at a later date.) After the deal was completed, I suggested that she contact the seller in the next 6 months to a year to ask the seller if he would consider reducing the principal and/or interest rate if she made the $35,000 payment now! It doesn't hurt to ask, does it?

The solution to this scenario is a combination of Busting Balloons By Making Change and Seller Busts Balloons by Refinancing in the NOTE PROFESSOR NOTEBOOK. This deal was made possible by first knowing there are virtually endless combinations of note techniques, and second by determining exactly how much and when the seller NEEDED his money. Notice I emphasized "needed", and did not mention "wanted". One important factor to remember: There is a difference between "need and "want".

Seller financing is viable and flexible means of purchasing property in today's economy. Having knowledge of Notes and the time value of money makes it possible to put deals together that others let go by. All serious real estate investors know how to take advantage of knowledge and education in Notes.

Please CONTACT ME if you have questions or have a topic you would like me to discuss.

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.

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"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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Thank you for your comments. One of my readers asked me, "When is the economy going to rebound"? He went on to comment that if everybody would pay "his/her fair share"; and if off shore money would be "repatriated", these actions would bring money into the royal treasury, which would result in the economy recovering.

Then, as if by fate, as I was writing this article, one of my favorite readers forwarded me an email detailing the importance of the 2014 election, and the issues involved. What especially caught my attention was the recommendation to elect candidates, who would eliminate "freebies to the non citizens". Is this not saying that freebies are perfectly acceptable to citizens, but not non citizens?

I was aghast to think that such economic illogic is held by many. More disturbing is the political philosophy such fallacious reasoning entails. The major premise inherent in terms like "pay his/her fair share", and "repatriate" is the prime reason that our economy, and indeed the world economy, is in such chaos.

I was further dismayed when tuning in to a national news program, I heard two Republican politicians echoing "all should pay their fair share" along with we should "repatriate" the money in offshore accounts. According to the politicians, this would bring billions to the federal government. Let's peel away the layers of this type of logic to expose what political and economic philosophy such reasoning encompasses.

When politicians talk of "fair share", very seldom do they mention fair share of what? The canned response is pay for roads or to pay something of this nature. (It should be noted that roads are financed by a usage tax in the form of gasoline tax. This begs the question, "Where does all this money go?", but this is another topic) Along the same lines, instead of answering "fair share of what", politicians will exclaim "if we could just eliminate all the waste, our economy would be flourishing". What politicians from both parties will NOT discuss is the economic system of wealth redistribution which America has adopted. Wealth redistribution system is really what they are wanting us to pay our "fair share" and support.

Many believe wealth redistribution encompasses only welfare programs to individuals. Welfare fraud and deadbeats, along with waste are touted by many politicians as the problem with the system, rather than examining the system itself.

Inherently, any system of wealth redistribution will always be plagued with waste and corruption. Waste and corruption are actually built in the system. Is it not our wealth redistribution system that rewards farmers for not producing, subsidizes corporations for not being efficient, enacts price supports to ensure ungained profits, or guarantees loans to individuals and corporations? Add to this a regulatory system that protects large corporations from competition by enacting expensive and cumbersom regulations. Let's not forget the massive foreign aid, where dictators and other collectivists countries will further drain the wealth of productive individuals.

Moreover, those who point out that collectivism is not sustainable, let alone moral, will be classified as mean spirited, cold hearted, anti any government and the ole stand by "greedy".

But Tom, what about the safety nets for both businesses and individuals? I try to keep my articles concentrated on economics, so I will not address this question here except to say that "forced safety nets" enacted by the federal government is a form of wealth redistribution. Wealth redistribution, no matter if it benefits individuals, corporations, or foreign nations at the expense of others is not sustainable, not to mention immoral. It is a form of consuming without producing.

Remember, CONSUMPTION CANNOT EXCEED PRODUCTION.

This axiom does not seem to hold weight with politicians from either side. Both parties not only accept, but also promote wealth redistribution as a way of life. . How do I know? When wealth redistribution has been deemed moral, the only thing left to do in a democracy is to vote to decide who is to be plundered and who is to receive the plunder.

When you hear politicians exclaim all need to pay their "fair share", the politicians are really saying wealth redistribution is moral and should be funded; and funded by YOU.

Likewise, when activists who tout they are for freedom, yet have as one of their goals to eliminate "freebies for non citizens", imply wealth redistribution, or freebies, is acceptable for some, but not for all. They still believe all should pay their "fair share", do they not? They are merely arguing who is going to be plundered, and by how much, along with who is to receive the plunder.

"Fair share" is a marvelous use of words. Who can argue with paying our fair share? We are back to the primary question. Fair share of what?

The linguist who came up with the idea to use the word "repatriate" as the verb to acquire the wealth of others is brilliant. Let's look at the dictionary definition of "repatriate": to restore or return to the country of origin, allegiance, or citizenship .

Are you seeing the connotation of using a word like "repatriate". It gives the impression the money in off shore accounts is being held prisoner, and needs to be freed? Freed from what; the rightful owner?

By accepting the term "repatriate" we equate if one deposits his/her earnings where politicians cannot access our wealth, our property is a prisoner of war. Of course "freeing" the money, means politicians can get their hands on it. More importantly, "return to the country of origin" implies this money belongs to the government or politicians, and not to the entity which earned it. Remember, private entities create wealth, not governments. Yet our politicians imply the earnings of individual entities are being held prisoner if politicians cannot gain access. Use the word "confiscate" instead of "repatriate" and see how the logic unfolds.

To "repatriate" money in off shore accounts in many ways has a more sinister connotation. It is actually the essence and philosophical cornerstone that allows any system of wealth redistribution to survive. Why? Because the phrase itself implies that all property belongs to the government, not to the individual. The government will decide what you may keep, or your "fair share". They will then redistribute "your fair share" as they see fit.

Surrendering to the concept that government owns all property to disperse at the whims of politicians is only a step away from completely adapting the concept of "from each according to his ability; to each according to his need". As we have learned from other economies which have tried this philosophy, the end result is economic collapse at best, and starvation along with despotism at worst.

But Tom, would not eliminating the IRS, enacting a fair tax or a flat tax solve our problem. No! This is merely changing the form in which taxes are paid, or treating the symptoms and ignoring the cause. Accepting the system of wealth redistribution while changing the form of taxation will not change the unpleasant results inherent in any system of wealth redistribution.

Summary: Our economy will not improve until we recognized why it is in such bad shape. Looking for scapegoats in the form of welfare moms, big banks, illegal aliens, or waste and fraud does not address the the primary cause of our chaos; the abandoning of free market principles in favor of collectivist doctrines. When you hear politicians from both sides talking of "paying your fair share" or "repatriate" property off shore, you are hearing politicians accept the concept of collectivism. Only when we realize collectivism is neither sustainable nor moral will any economy recover.

Does this mean to put your head in the sand and do nothing. No! Be aware of what is happening. It appears that Bernanke is going to put on the brakes pumping currency into the system. This means the $45 million a month to Fannie Mae will cease. If so, interest rates will rise and the real estate "recovery" will unhinge. Higher interest rates also means if you have notes to sell, now is the time to sell them. I still think buying real estate at rock bottom prices with all cash, or with seller financing on favorable terms is a formula for increasing wealth. However, realize that as long as we accept wealth redistribution as being moral, there are dark clouds on the horizon. Why? Because CONSUMPTION CANNOT EXCEED PRODUCTION.

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