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You can sell only the next ten years of your note for $100,000.00. Now you have the money you need, plus $5,000 to spare. 

 

However, because you sold the payments that are most valuable to an investor, we pay a premium for them. At the end of the ten years, the payments revert back to you. Get this! You still have a note with a principal balance of $175,449.23!! 

 

If the buyer paid you off that very day you would receive $175,449.23!

What happened is that you received the $95,000.00 that allowed you to take advantage of the business opportunity (earning you even more money), plus you still receive the remaining value of your note: You received $95,000.00 income from the partial sale, leaving a $175,449.23 remaining balance, for a total value of $270,449.23 for a $200,000 note.

 

But wait a Minute! 7 months later the "Balance to Seller" is $100,297.69

 

Looking at the amortization schedule; the original partial was done in February and seven months later in September of the same year the balance to the seller is over $100,000. If the homeowners sold or refinance the property the seller would receive 100% of his original note.

 

ADDITIONALLY if he came back and sold the balance of the payments he would receive the same $100,297.69. Receive $100,000 in February and $100,000 in September or a $46,000 discount which would you rather have?

 

The secret of the time value of money offers the note owner many ways to satisfy his or her particular needs. Presented with these choices, note holders seldom have too many difficulties deciding which way to go. Every situation is unique.

 

If your note had one; you could also sell off or retain a balloon payment. PLUS you have the opportunity to sell more payments or the balance of the note usually after 6-12 on-time payments. If there was ever a way to have your cake and eat it too, this has got to be it. You don't have to be victimized by what you don't know any longer. You can put the time value of money to work on your side. When selling your note, be sure to ask for a full purchase quote, and also a quote on a "partial" purchase. 

 

Potential problems: 

 

You sold your property and agreed to finance your buyer (carry back paper) for some or most of the purchase price, you've done your "due diligence" your buyer appears to be a good credit risk and promises to make all the payments on time. Life is full of changes, the old proverb "the only consistent thing is change" is as true today as ever. Some changes we control, others are beyond our control; changes in health, job transfers, loss of employment, divorce etc. there are three common outcomes: 

 

ü The buyer/payor makes all payments as promised and the note goes "full-term". 

ü The buyer/payor sells or refinance the property early. 

ü The buyer/payor defaults; the seller or investor must foreclose. 

 

The first scenario is easy, no further explanation is needed the seller receives all of their payments as agreed.

The other two scenarios however require some explanation. The biggest factor is the amount of time that has passed since the sale of the "partial".

 

Let’s discuss an early payoff first: As the payor makes their regular monthly payments their principal balance reduces according to the original amortization schedule, the investors principal balance reduces likewise however at a different rate because the note was purchased at a discount (please refer to amortization schedule). 

 

We'll assume the payor sells or refinance the property 24 months later, the payoff balance according to their original amortization schedule is $196,676.22, the payoff balance on the investors amortization schedule (for the partial purchase) is $90,852.74 that means the investor is paid off and the original note seller receives the difference = $105,823.48. It's that simple! 

 

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