Double Your Pleasure with Half and Half: Quadruple Your Yield with Fourth and Fourth
From Page 51 of The Note Professor Notebook

Often sellers of notes are firm about not taking a discount for their note, even though they need money now, or sometimes they only need a certain amount of money now. They simply do not like the idea of taking a discount for their note, even if the note is not A grade, or even if the discount is actual market value.

Let's look at a note, break down the variables, and see what we can achieve. Say a note seller has note for $100,000 at 8% for 30 years with payments of $733.76. The note seller needs $50,000 for medical expenses, but refuse to take a discount on their note.

As a Note Buyer, you are demanding at least a 12% yield. For a little calculator practice, what is the price you would pay for the entire note? Did you come up with $71,335.37? This discount is out of the question for the seller, and they are adamant about not taking a discount. Is there a method to get the note sellers their money without discounting the principal?

One method of solving their problem of needing cash, but not wanting to take a discount on the face value of the note is to offer to buy half of the balance of the note for half of the remaining payments, and after receiving those payments, buy the 2nd half of the note. Let's look at a note, break down the variables, and see what we can achieve.

N = 180 (Half of Number of Months Remaining)
I/YR= 15.98 Wow! The Face Interest Rate Doubled from 8%
PV = $50,000 (Half of the Balance of the Note)
PMT = $733.36
FV = 0

Rule of Thumb: When you purchase half the note for half of the remaining payments, your yield will double. You will receive 15.98% yield no matter the payment amount or balance.

As a Note Buyer, you will enjoy an almost 16% yield, yet there appears to be no discount because the balance was $100,000 and you are purchasing $50,000 now and another $50,000 in 180 months. At the end of 180 months is where the discount will really be visible and might present problems. If you follow on a calculator, at the end of 180 months, the note balance is only $76,782. If you purchase the remaining payments for $50,000, this is a 65% discount.

A better way might be to merely purchase the first half of the payments for half the note balance and let the note sellers keep the back half, with a possible first right of refusal. This way you as a Note Buyer would still achieve a whopping 15.98% yield and not have hard feelings or problems after 15 years.

If you are curious, you are asking if you double the face value of the interest rate by offering Half and Half, what happens if you offer a Fourth for a Fourth? Let's look.

N = 90 ( Fourth of Number of Months Remaining)
I/YR= 31.90 Wow Times Four! The Face Interest Rate Quadrupled from 8%
PV = $25,000 (Fourth of the Balance of the Note)
PMT = $733.36
FV = 0

32% is an excellent yield, isn't it? But I know many of you are saying, "Tom, I don't have any money". Here is the good part. What if you found an investor who requires a 12% yield? If you convinced the note seller to accept the Half for Half offer, what could you make in a commission? Let's look:

N = 180 (Half of Number of Months Remaining)
I/YR= 12% (Yield Required by Your Investor)
PV = $61,138.49
PMT = $733.36
FV = 0

Remember, your contract with the note seller was for $50,000. This would translate into a $11,138.49 profit. Not bad; not bad at all. It is time for you to play with your calculator. What would be your profit if you purchased the note by the Fourth for Fourth method, and sold to an investor who required a 12% yield?

When you know and understand the concepts of the time value of money and how the different variables relate to one another, the keys to the doors of wealth are open to you.

Tom will be teaching this technique in detail at the Paper Source Symposium April 28th thru April 30th . Use the coupon code thenderson for a $50 discount.

If you have a topic you would like me to discuss at my Paper Source presentation and plan to attend, send me an email. If I use it, I will call out your name and introduce you to the entire convention.

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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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.

Recently, a local real estate club had as its speaker Thomas F. Siems, Assistant Vice President and Senior Economist for the Federal Reserve Bank of Dallas. Below is my take on his presentation.

Mr. Siems did give some insight into the working of "the Fed" (Federal Reserve Bank). While he was more honest than most Fed speakers I have heard, he still gave the Fed double talk.

For example, one of Siems' slide presentations was titled "Inflation Is Low and Stable". While "on one hand", (a phrase economists love to use) the slide indicated inflation was stable at around 2%. Then he honestly makes the comment that the core inflation rate excludes food and energy and is misleading. As pointed out in previous issues of The Note Professor Newsletter, "inflation is low if you do not count eating, driving or keeping your dwellings at a livable temperature." The next time you go to the grocery store or pay your utility bill, tell me if you think prices are stable.

During the Clinton Administration inflation was measured by taking price of a basket of goods and services at a period in time, then comparing the price to today. If this same measurement was used today, inflation would be in the double digits. To further confuse us, Siems compared "headline inflation", with "core inflation" and "trimmed mean inflation". Do you really want me to explain the difference? If enough people contact me, I will give you an explanation you can read if you have trouble falling asleep. The point is the true inflation rate is purposely being skewed downward.

To end this discussion on inflation, someone asked if the Fed's printing of money contributed to inflation. I was very disappointed in Siems' answer that the Treasury Department, not the Federal Reserve prints money. What a deceptive answer. Moreover, in the next breath Siems' admitted the Fed creates money out of thin air. In other words although the Fed creates money out of thin air, it is the Treasury Department who actually prints the money, so don't blame the Fed.

Another topic of interest was unemployment. The slide was titled "Unemployment Continues to Fall". The slide showed graphs of unemployment declining. Siems' then accurately explained that the unemployment data does not take into consideration those who have quit looking for a job, those working part-time, or those who are underemployed and working two jobs.

He further admitted the data does not reflect that a large portion of the employment growth went to illegals or foreigners. While this is more a political issue than economic, to get a true picture of the unemployment rate, job growth needs to include what jobs are being created and who is receiving them.

To summarize, like inflation, the unemployment rate is skewed downward.

I cannot discuss the topic of economics without examining the Gross Domestic Product (GDP). Because of space, I am going to condense the discussion of GDP. GDP is the total cost of all goods and services produced in the United States in a period of time, generally in one year. Siems' graphs correctly showed the economy was "sluggish" at approximately 2% growth. However, the graphs are completely misleading and skewed.

For example, the GDP includes government spending. In other words, the more government spends, the higher the GDP, which skews GDP upward. We know that government spending is not a good formula for economic growth because it takes money out of your and my pocket and transfers it to political agendas. Since governments produce nothing, government spending is a form of consuming without producing.

Moreover, the GDP does not take into consideration the true effects of inflation. For example, if heating oil rises from $1 to $1.20, this would make GDP rise, although there was no increase in production. Inflation is another form of consuming without producing. In other words, if you factor in the non productive government spending and inflation, our economy is more than "sluggish", it is in decline.

A brief discussion of what small businesses deem their major concerns is in order. According to Siems, small businesses were most concerned about taxes and government regulations in 2016. The fact that Obamacare now comes under government regulation, might explain the large increase of concern in 2016.

The point is government is again a major barrier to the growth of small businesses.

Because of limited space, I am going to fast forward to Siems' comment that most caught my attention. Siems mention that for the first time the Federal Reserve lost money. He went on to explain that the Fed had several hundred million dollars in their coffers, and Congress, in all its wisdom, decided to confiscate, I mean appropriate the money. I found it amusing that Siems remarked how he thought it was dangerous for Congress to "tax" the Fed, and it was setting an alarming precedent. In other words, if Congress "appropriates" money from you or me, it is acceptable. However, "appropriating" money from the Fed is dangerous.

I mention Congress' taking money from Fed because to me this is an indication of how broke and desperate Congress has become. I am often asked where the "safest" place to invest. I always answer I know of no "safe" place because no matter where you put your money, Congress can confiscate it. For example, if you put your money in gold, Congress can just make gold ownership illegal as it did during the depression. Likewise with 401Ks or other investment vehicles that appear safe, Congress can just change the rules and "appropriate" it.

Look at it this way; if Congress is going to take on the powerful Fed and confiscate its earnings, do you think they would have any hesitation in changing the rules to make your 401Ks vulnerable to taxation? Moreover, the fact that Congress decided to "tax" the Fed tells me how desperate they are for funds to continue their follies.

Another important sentence uttered by Siems was he hoped the artificially low interest rates would get the economy back on track because the Fed had run out of "arrows for its quiver". A glimpse of reality is contained in this statement. In previous issues of The Note Professor Newsletter, I pointed out how the Fed had painted themselves into a corner. If they raise rates the economy will take a dive as money becomes more expensive. If they keep them artificially low, banks will not lend to any but above average portfolios, savings will decline, and the bubble will just get larger. Maybe some in the Fed realize they have "run out of arrows".

In conclusion: the Fed is giving us skewed data to convince us that inflation is low, the economy is growing, but sluggish and job growth is on the rise. From my perspective, the data has been manipulated to paint a rosier picture than reality. In my view, I suggest the purchase of free and clear properties at rock bottom prices, or purchase properties using owner financing with favorable terms. I also suggest if you have notes to sell, now is the time. Should the economy take a dive, you will get less for your note as cash becomes king. Keep your powder dry.



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.
While on this subject, I do get comments that I do plan to address, but with the fast pace economic topics are developing during an election year, there are other issues that pop up. Maybe in one issue I take time and try to answer all of them.

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