Time is Money

The Fast Track To Even Greater Profits Let me reveal something incredible. I will show you how you can actually lower the interest rate on a note or a loan and still come out ahead...

Way Ahead!

The Fast Track To Even Greater Profits Let me reveal something incredible. I will show you how you can actually lower the interest rate on a note or a loan and still come out ahead...

As you probably know by now, there are ways for you to get some pretty good yields on your money by investing in discounted mortgage paper. Yields of 11% - 18%, or even higher are really not that uncommon.

Although, most of you are probably not investing in these kinds of deals yourself, but rather "flipping" them to me or an investor and just pocketing the commissions.

Increase Your Yield, and Give Your Payor a Break However, it's important to know how time and interest affects the value of something. So, once you are ready to invest in these kinds of deals yourself, or if you're receiving any kind of payments, you'll know how to increase your yield while at the same time giving your payor a nice break.

Onward. Let's assume you found a $25,000 note, with a 12% interest rate that's paying $300.04 for the next 15 years.

If you bought this note for $25,000, you would be getting 12% on your money for the next 15 years.

But, let's further assume that you want to make 15% yield on your money instead of the 12%. So in order to make 15% on this particular note, you would have to "discount" the note.

Discounting a note, simply means that you pay less than the face value.

After a few quick taps on the calculator, you'd discover that in order for you to make 15% on this particular note you would have to discount it to a price of $21,438.

So you make an offer to buy the mortgage note for $21.438. If the seller accepts your offer you would make 15% yield on your money.

Remember, you can't change the terms of the note without the payor's approval, so if the payor will pay you $300.04 every month for the next 15 years, you will have made a 15% yield on your money. Not too bad!

Early Payoff Let's see what happens if the payor decides to pay off his mortgage early for whatever reason! What happens to your yield? Does it go down or up? Let's see!

Let's assume that the payor decides after 1 year to refinance the loan. After all he is paying 12% interest on his loan and he figures that he can now qualify for a bank loan at 8% interest.

The amount he now owes you after paying on the loan for 1 year is $24,365.37. But remember, you bought the note at a discount and paid only $21,438 for the note when the balance was actually $25,000.

Let's see what kind of yield you have earned on this note if the payor refinances his loan and pays you off 1 year after you bought the note.

If we plug the figures into our calculator we now get a yield of... are you ready for this!!!

28.8%

Go ahead and try it yourself. Put 12 (1 year x 12) in "N" key (number), $300.04 goes in "PMT" (payment), $21,438 in "PV" (present value) and $24,365.37 in "FV" (future value). Now punch "I" (interest) and you should get 2.40%. Multiply this by 12 and you get...

a great big 28.8%

By being paid off early on your note (after just 1 year instead of 15 years) you increased your yield from 15% to a whopping 28.8%.

This brings us to the "Golden Rule" in paper buying!

Always Try To Get Your Money Back As Soon As Possible!

Do It As Often As You Can The next question that should come into your mind should be...

How Do I Make This Happen Every Time I Buy A Note?

What we do is, design a strategy that will encourage the payor to pay off his loan as soon as possible (instead of us just sitting back and hoping for a pay off).

Let's talk about a few ways we can accomplish this!

After we have purchased the note from the seller, we immediately encourage the payor to pay off his debt by giving him a strong incentive to do so. I mean something that's really going to make him move!

We'll just ask him something like "If I made it worth your while, would you be interested in saving money on your loan?"

Make It Very Attractive Let's see what we can offer him:

Let's assume that you bought a $15,000, 12%, 10 year note that's paying $215.21 per month for $9,500, which would give you about a 25% (24.84%) return on your money.

The Specifics Of The Mortgage Loan From The Payor's View Is As Follows:

• Balance on his loan: $15,000
• Interest rate: 12%
• Monthly payment: $215.21
• Payments remaining: 120
• Total payments ($215.21 x 120): $25,824.77

Pay Off His Loan You can start by asking the payor if he would be interested in paying off his loan, if you gave him a discount!

For example on this $15,000 loan, you could offer to take $13,500 cash for it.

This would save him over $12,300 if we figure that he would pay you $13,500 now rather than pay you 120 monthly payments of $215.21 which is $25,824.77.

After all, if he has the $13,500 sitting in a savings account at a bank, earning a measly interest rate, he might seriously be interested in your generous offer. He would be far better off paying off his 12% loan than keeping his money in the bank earning 3% interest.

If he would pay you off within the first month, you would just have made over...

500% yield on your money!

However, not everybody has the money available to pay off a loan right away. Some will, when given the opportunity, but most can't. They simply don't have the money

Pay Just a Little More Each Month Instead of paying off his loan, we could ask the payor to increase his monthly payment to us a little every month. If we ask him to do that, we must give him something in exchange for doing so.

He might be willing to pay us an extra $50, $100 or more per month if we make it attractive for him.

We can lower his interest rate from the 12% he is currently paying or we can offer to reduce the amount he owes on his debt, which is $15,000, or we can do a combination of both.

Remember that everything is negotiable, so work it out on paper before you suggest anything to him. It might not be worth your while to get an extra 1% or 2%. But if you got an extra 4%, 5% or more it just might be. It all depends, you just have to look at each individual case.

Let's go back to our example. The payor owes you $15,000 at 12% and he is paying you $215.21 per month.

Usually the payor is more agreeable to lowering his interest rate than having to come up with the money he owes you to pay you off.

But first, let's assume he is willing to increase his monthly payment by $200.00. So, instead of paying you $215.21 he agrees to pay you $415.21 per month.

How much do you think he would like to have his interest lowered? From 12% to 11%, or even down to 10%. Or how about if he asks for 8%. Would you do it!

Yes, Yes, Yes!!!

Do you know that if you lowered his interest from the 12% he is currently paying you all the way down to...

• 0% (yes, that's right, ZERO Percent)!

you would still come out ahead?

"How is that, you might ask?" "Are you nuts?" "No way would I offer him 0%!" "I wouldn't make any money that way... would I?"

Yes, my financial genius...You Sure Would!

Let's see how it would work.

We know that "the sooner the money is repaid, the higher your return" because of the "time value of money".

Different Points of View However, the payor looks at this quite differently. He's looking at the amount he owes and needs to repay, rather than the amount you have invested.

Payor's Point Of View, With No Changes

• Amount he owes on his loan: $15,000
• Interest rate: 12%
• Monthly payment: $215.21
• Number of payment to be paid: 120
• Total payments ($215.21 x 120): $25,824.77

Your Point Of View, With No Changes

• Price you paid for the note: $9,500
• Monthly payment: $215.21
• Number of payment to be paid: 120
• Yield on your investment: 24.84%

Payor's Point Of View, If He Pays No Interest (0%) On His Loan But Agrees To Pay $200 More Every Month

• Amount he owes on his loan: $15,000
• Interest rate: 0%
• Monthly payment: $415.21
• Number of payment to be paid: 36.13
• Total payments ($415.21 x 36.13): $15,000

Your Point Of View, If You Lowered The Interest Rate To 0% And The Payor Agreed To Increase His Monthly Payment By $200

• Price you paid for the note: $9,500
• Monthly payment: $415.21
• Number of payment to be paid: 36.13
• Yield on your investment: 32.04%

Recap Let's just briefly review what has happened here:

Just by you suggesting to the payor that if he will increase his monthly payment by $200.00, you will in return not charge him any interest on his loan.

By you doing this, he will be able to pay off his loan in just 3 years instead of 10 years. This will save him 7 years of payments.

Also, he will be paying you a total of only $15,000.00 (remember we don't charge him any interest) instead of $25,824.77 (principal and interest). This will save him $10,824.77.

That's Pretty Fantastic, Wouldn't You Say?

Now, let's take a look at what it's done for you:

By you getting an extra $200.00 every month, you agreed not to charge him any interest on his loan.

So, by doing this, you will have your money back in just 3 years instead of 10 years. This is figured by taking his regular monthly payment of $215.21 + $200.00 and dividing this into $15,000, which comes out to 36.13 months, or about 3 years.

So by getting your money back a lot sooner, your yield will have gone from about 25% to 32%.

Understanding the Principle That "Time Is Money" Will Make You a Lot Of Money

It's to your advantage to try to increase the payment amount as much as possible initially, rather than to reduce the interest rate dramatically.

Next, let's compare some increases in payments as well as corresponding reductions in interest rates:

Payment increase Monthly payment Number of pmt. Interest rate Effective yield

• $ 0.00 $215.21 120 12% 24.84%
• $ 50.00 $265.21 80 11% 28.44%
• $100.00 $315.21 61 10% 31.68%
• $200.00 $415.21 40 6% 36.72%

From the above table you can see that by reducing the interest rate as an incentive for the payor, the increase in payment will skyrocket your return from about 25% to almost 37%.

In fact, by you cutting the interest rate in half, to 6%, in exchange for the payor to increase his monthly payment $200.00 your return becomes 36%!

Also, by reducing the interest rate and upping the monthly payment you will reduce your investment risk further. More of the monthly payment will be applied to the principal balance of the loan making the loan paid off a whole lot sooner.

Remember..

"You Don't Have To Get It Perfect... You Just Have To Get It going!"

Article by Theodore Hansson of Theodore Hansson Co. Theodore has helped hundreds of ordinary people succeed in their own home-based business, brokering mortgage paper. Visit him at http://www.thansson.com for FREE "how-to" information as well as a free subscription to his newsletter "Paper Profits & Extra Cash".