Once you learn the concepts of the time value of money, and how to use a financial calculator, deals will fall into your lap. Not because anybody is in dire need of cash or the note is going bad, but because you are armed with knowledge and posses the ability recognize how to improve your note portfolio.

One axiom I teach is "the more the merrier" and "the sooner the better; more is better than less and sooner is better than later." Trading notes is just one tool where you can apply this axiom to increase your yield. Let's look at a simple case study of trading notes that illustrates this concept.

Let's say you were presented a $10,000 note @ 10% for 10 years, with monthly payments of $132.15, where the seller needed $5,000. Here is what the original note looked like. ( I always put a minus sign in PV because I am in a "buying" mode. It also makes me feel warm and fuzzy to see the PMT as a positive)

N = 120
I/YR= 10
PV = -10,000
PMT = 132.15
FV = 0

You purchase this note for $5,000. What is your yield? (A little calculator practice, if you please)

N = 120
I/YR= ?
PV = -5,000
PMT = 132.15
FV = 0

Since we know 4 of the 5 variables, we can now solve for the yield. Did you get 30.09%?

Not bad. Not bad at all. Can it get better? When you know the concepts of the time value of money, of course it can get better.

In one of your professional groups you discover one of your associates has a note that is going to last only 5 more years, and has an interest rate of 9%. Your associate likes the above average yield this note brings, and wishes this note would last longer and asks you if you have any ideas.

Immediately your wheels start turning, and the lights and sirens start going off. "Tell me about your note," you ask. "Ching, Ching," goes the mental cash register in your head.

Here is what your associate's note looked like:

N = 60
I/YR= 9
PV = -10,000
PMT = 207.58
FV = 0

Would You Trade a 10% Note for a 9% Note? Sounds like a sucker trade, does it not? We shall see.

If you traded your note for your associate's note, how would you stand? Remember, you purchased your $10,000 note for only $5,000.

N = 60
I/YR= 44.11% Wow
PV = -5,000
PMT = 207.58
FV = 0

By trading your higher yield note for a lesser yield note, you increased your position from 30% to over 44%. How can this be? Remember the axiom, "The more the merrier. The sooner the better". Are you not getting the best of both worlds? You are getting more money and receiving it quicker. The same concept is used in THE NOTE PROFESSOR NOTEBOOK example of turning a 7% note into a 75% yield. When you know concepts, the deals just appear.

What makes this deal so grand is that your associate now has a note that is paying 10% instead of 9% and will last longer. This is just what he wanted. What a happy camper!

Because you were armed with knowledge of how to apply the concepts of the time value of money, you increased your yield to over 44% yield, while your associate ends up with a 10% yield instead of a 9%. This is a WIN/WIN situation for both of you; not to mention that you are gaining a lot of credibility with your peers.

Assuming the collateral of both properties are good, are there any draw backs to this trade? What would happen if there were early payoffs? I will leave you with this exercise to "play" with. Have fun!!!

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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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."
Jeff C. The Colony/Investor

"Your manual is short and straight to the point, it's rare to buy something today that gives you your money's worth. Thank you" Stephan B. Phoenix, AZ

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.

My predictions for 2015 (jan 2015 newsletter), will be much the same in 2016. In essence it is WHO KNOWS? The Latin phrase, Ceteris Paribus, or "All things remain the same" is truer for 2016 than last year. However, things will not remain the same because of political influence.

With things "not remaining the same", economic laws are put into chaos. Not only has the possibility that some major "man made disaster" increased tremendously, only adds to the fact that the Federal Reserve (the FED) is still in play as to what it will do next.

Will the FED continue keeping interest rates artificially low to keep the stock market from having the eventual downturn, or will the FED raise interest rates to combat inflation? We have seen the FED increase interest rates ever so slightly. As a result, we have seen 30 year mortgages rise above 4% at the end of 2015. If the FED continues to raise interest rates, look for mortgage rates to increase in proportion to the FED's increase.

How much will the FED increase interest rates; who knows. As we have discussed in earlier issues of The Note Professor Newsletter, the FED has painted themselves into a corner. If they continue with the artificially low rates, inflation will continue. However, if they raise rates, the stock market boom will come tumbling down.

Make no mistake, we do have inflation, no matter what the FED says, and anybody who has gone to the grocery store knows it. Of course, they could change the definition of inflation again, which is what the government did to deny increases in Social Security. Remember how the powers that be justified there is no inflation because the price of oil has fallen.

Along the same lines, because of low interest rates, real estate prices have increased in many areas. For those who can qualify for loans, fixed rate mortgages are still looking good for a refi or purchasing a home. But remember, as interest rates rise, less and less people will be able to afford a mortgage, especially if home loans are as difficult to obtain as now.

A rise in interest rates also affects the price of seller financed notes. As interest rates rise, the price of a note declines. If you have a note to sell, now would be a good time.

Low interest rates, along with the difficulty of home buyers' ability to obtain financing tends to make rentals in both houses and apartments look attractive. But BE CAREFUL. Should the economy go South because of increased interest rates or something in the Middle East, those holding rental properties with small equities will be hurting.

With this in mind, I am still advising my students to purchase rentals with seller financing to obtain not only good prices and rates, but excellent terms, such as no due on sale, built in discounts, right of first refusal etc. With these clauses, the investor can enjoy exit strategies not available to investors with conventional financing.

Add to this the fact that should the economy go South and tenants cannot afford rents, the possibility of the investor being able to make a deal with the note holder are way above average. Is there any doubt the individual selling his/her house or rental using seller financing and is faced with taking the property back or modifying the terms of the note will consider the modification rather than taking back a problem.

Conclusion: Sadly, the Latin phrase, Ceteris Paribus, or "All things remain the same" plays a larger role than ever in today's economy. It is the antithesis of free markets for individuals to be forced to change their trading preferences to coincide with the whims of political forces. It is difficult enough for businesses to make decisions taking into account the influence of global events. It is almost impossible when market forces are replaced by politicians, bureaucrats and the FED.

For example, is the FED going to raise rates, and if so by how much? Are taxes going to be raised, and if so by how much and on whom?

The laws of supply and demand have to a large part been synthetically substituted by the actions of politicians and bureaucrats.

Be aware; the actions of legislators, courts, or regulatory agencies cannot override economic laws. Consumption cannot exceed production.

HAPPY AND PROSPEROUS 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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