Who the Players
The first thing to remember when considering
selling all or part of your note is to understand "who the players are." There are usually three individuals
- The note seller, this is usually the
seller of the property as well.
- The payors, obviously the property
- The investor, who agrees to buy the
income stream from the seller,
It's helpful to remember that unlike the seller and the
property buyer, the investor has no “Emotional Involvement” in the property. That’s only the collateral to
secure repayment of the debt in the event of a default. But it’s often expensive and time consuming to convert
the collateral back into cash; that is all any investor or lender wants we don’t want the property…
we want the PAYMENTS.
Secret: "THE TIME VALUE OF MONEY".
What we and all
note buyers do when we look at the value of a series of payments (also called an income stream); is to calculate
the present value of the receipt of money in the future. We do this because dollars today will buy more than
dollars in the future.
To simplify the
Time Value of Money; imagine someone owes you $10 - They offer to give you $5.00 today or $25.00 one year from
Which one do you
Many would choose
the $5.00 now vs.. $25.00 in a year…
That's the time
value of money.
(If your answer is
$25 one year from today; congratulations you don't need to sell your note).
Some of us can
remember when gasoline was .31¢ a gallon? People were horrified when it shot above $1.00! Now, if we can
get a gallon of gas for less than $3.00 we feel fortunate. Put another way, twenty years ago the value of a
dollar was a good three gallons of gas. Today it is less than one. If someone had been buying the future value
of gasoline then, he or she would have had to take into account changing values over time.
Selling Part of the Payments (Known as selling "A
like you can understand and truley appreciate the miracle of compound interest and the time
value of money. Most can see the big advantage in selling the most valuable part of the note
(the next payments). While they continue to earn interest on the portion of
the note you did not sell . Sometimes it's not only the best option; sometimes it's the
simple purchase gives you
the very best of both worlds. The
powerful advantage to this purchase is due to the minimal effects of time; the discount is negligible and
given enough time there is no discount! You want 100% for your note?