It is that time of year again where retailers are offering deals to move their inventory, especially their high price inventory that did not sell over the Christmas buying period. Be on the lookout for all sorts of deals from high discounts to favorable financing. Maybe you can take advantage of one of them. 

Often you will see deals being offered and think "How do they do that?". When you know the concepts of the time value of money, what is happening is simple.

For example: A furniture store advertises it will sell you a complete bedroom set for $3,000 with nothing down and zero interest, for 36 months. Let's get out our friendly neighborhood calculator and see what is happening. (Remember, I usually put the minus sign in front of PV because I assume I am going to buy the note. This should give you a hint as to what is going down.)

Now for a "behind the scenes" look at what the merchant is doing. Retailers use terms like "keystone" or "three marks". Keystone means they have doubled the price they paid for the product, and three marks means the retailer has tripled the price of the product. For example, if a product cost the merchant $100, it would sell for $200 if "keystoned" or $300 if "three marked".

With this in mind, we see that 25% off still gives the retailer a profit, while making the product more affordable. Retailers must, I say again, MUST move their inventory quickly, if they want to stay in business. If you think cash flow is important in the real estate business, try purchasing several hundred thousand dollars of a product and have it sitting on your show room floor for a long period of time.

With this in mind, high priced items like the bedroom set, going down on the price 25% to $2,250 still might not move expensive inventory because of the large cash outlay.  What can the retailer do to make the product more affordable?  

What if, rather than going down on the price, the merchant could sell the bedroom set on credit, with 0 down, and 0 interest? Think they would have any takers? Yep! How does this look? 

N= 36
I/Yr= 0
PV= $ -3,000 
PMT= $83.33
FV= 0

Looks attractive to the consumer, doesn't it? For only $88.33 a month, the consumer can enjoy a brand new $3,000 bedroom set. But retailers cannot stay in business unless they move their products for cash, and quickly. What are they to do? You guessed it. SELL THE NOTE. Let's say that instead of giving a 25% discount to the consumer, the retailer discounted the note 25%.

What kind of yield would this give to the note buyer? 

N = 36
I/Yr = 19.75
PV= -$2,250 
PMT= $83.33
FV = 0

So if the retailer "keystoned" the product, the retailer still enjoyed a $750 profit and moved the inventory quickly by offering it on credit, with 0 percent interest. Play with your calculator to see the different possibilities if the retailer "triple decked" the product.

Armed with this knowledge, you might go to the retailer and offer to purchase the product for say $2,000 cash, or match the discount of the note buyer. Often times the merchant will agree just to move the product and get cash immediately. The merchant does not care from where the money comes.

Now you know another "trick of the trade". One word of caution, if you decide to purchase on such a plan, LOOK AT THE TERMS. Often the terms will state that if you are late on ANY payment, or some other obscure clause like if there are more than two reruns of "I Love Lucy" in any given week, the interest rate will increase. This is going to result in either your payments going up, the length of payments increasing, or both. So be careful.

What happens when they offer zero percent interest, and no payments for 3 months? Would love to get into this, but we would have to delve into Net Present Values and IRRs, however we have run out of time, and my fingers are getting tired. 

.Don't know what IRR means? You are leaving money on the table. The simplicity will amaze you.  We will cover this in future issues of the NOTE PROFESSOR NEWSLETTER.

If you have 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 do pay referral fees and this has been very beneficial.

To forward this email to friends or business associates who have an interest in time value of money, click the "Forward this newsletter" on the front page. Tom Henderson /a.k.a. THE NOTE PROFESSOR .

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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.
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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.

Before you start calling Tom the Grinch that Stole Christmas, I just wanted to "pat all you Santa's" on the back for a job well done. I also want to show the similarities between the myth of Santa and the myth that government provides services.

The Santa myth declares that a jolly, all caring, all knowing entity will bring gifts to all "good" girls and boys on December 25th. Of course the young children buy into this fantasy, and on each and every Christmas season, you will see the children's eyes sparkle in joy and delight as they wake up Christmas day to find that Santa indeed did visit their home to bring them the exact gift they wanted. And all they had to do was be "good".

As a side note, how many young children were told "Santa will bring you switches" when they misbehaved around the holidays. I know my hand is up.

Of course we know that all these gifts were not miraculously produced by a jolly, fat man and his elves, but rather were provided by the sweat and earnings of the parents and family. In other words, these gifts were not free, but rather earned.

Think now of our politicians who promise us if we are just "good", government will provide us with health care, food, housing, Iphones, day care, education, and anything else our hearts desire.

What does being "good" mean? Voting for the politician, from both parties, who promise the voters all their fantasies. Like the Santa myth, these politicians and bureaucrats present themselves as jolly, all caring and all knowing benevolent beings.

However, just like the myth of Santa bringing gifts to children free of charge, the government bringing gifts free of charge is also a myth. To begin, just as Santa is a myth, so is the concept of "government" a myth. By this I mean there is no government per se, but only politicians and bureaucrats who comprise government. In this light, we know the mythical figure Santa does not provide the gifts for Christmas, but rather the parents who use their earnings.

I remember when I was a young child, Santa was very generous to my two sisters and me. My father would work the majority of the year to pay for the prior Christmas. I will wager there are some of you shaking their heads up and down in agreement.

Likewise, it is not the politicians and bureaucrats who provide "free" housing, medical care, etc, but rather the tax payers and producers. Like my father, we are working the majority of the year to pay for the political Santa to provide all "good" girls and boys their gifts.

The point is No, Elizabeth, There Is No Santa at the North Pole or in Washington D.C.

With this being said, to all you Real Santa's out there who are working to provide your children and loved ones gifts for Christmas and the Holiday Season, PAT YOURSELF ON THE BACK for a job well done, this year and every year.

MERRY CHRISTMAS, HAPPY HOLIDAYS AND HAPPY NEW YEAR.



If you have questions or comments, CONTACT ME Tom Henderson /a.k.a. THE NOTE PROFESSOR. It is from your comments that I receive many of my topics.

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