by W.J. Mencarow

iscounted seller-created real estate notes provide higher returns than most investments. For example,

If they can afford $1,000 per month, offer to make the interest five percent. They would save $35,126 in interest, pay it off in 56 months, and your yield would be 15 percent. If they can afford $1,500 per month, offer to eliminate the interest entirely! They would save over $41,000 in interest, pay it off in 33 months, and your yield would be 27 percent. Suppose they pay $1,000 per month. Your Uncle Bob is getting one percent on his savings. Offer to sell him half the note at five percent interest. He pays you $25,000 (half of the $50,000 balance) and gets $500.00 per month for the next 56 months. If it defaults, he will be half owner of a $300,000 house. Now you have $15,000 invested and are receiving $500.00 per month. Your yield is 30 percent. Why would you do any of this? One reason is to increase your yield. The sooner you get your money back the better IF you are willing to find opportunities to invest this “soon - er” money into other notes. If you don’t want to work that hard, be happy with a lower yield for a longer time.


you find a 15-year fully amortized first lien note, $50,000 balance at nine percent interest collateralized by a mort- gage (or trust deed) on a $300,000 house. You buy it for $40,000 and receive 180 monthly payments of $507.00. Your return, or yield, is 13 percent. You could do nothing more than get $507.00 each month and do very well. But as they say on TV infomercials, “Wait! There’s more!” RESTRUCTURE THE NOTE You show the debtors the amortization schedule. Over the next 180 months they will pay $41,310 in interest plus $50,000 principal. That’s $91,310! You say, “here is how you can save over $30,000. If you can pay $800 per month, I will cut your interest rate to six percent.” You show them the new amortization schedule. They would pay it off in 75 months and save $31,166 in interest. Your yield would be 14 percent.

66 | think realty magazine :: may 2021

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