Posted by John Behle on November 07, 2000 at 19:26:23:
One of my favorite techniques is the "Amortized Partial". I don't know of anyone else who has ever taught it or used it, so though I might share it with you here.
Let me start at the beginning - how I stumbled across this technique.
I came upon this idea as a result of three factors. One is the need to re-invest cash flows to achieve a good yield. I did the CCIM courses a few years back and learned the intricacies and flaws of an internal rate of return (IRR). Bottom line is the IRR assumes the cash flow is re-invested at the same rate of return. If my calculator says my IRR is 24% on an amortized note, it is assuming I am re-investing every month at that rate. Reality is, most people need to put it in the bank and let it accumulate to the point where they can buy another note or cash flow. One way to reinvest and keep the yield higher is to do small notes, short term notes or even accounts receivable factoring.
I won't go into great details about that, but there is an article I wrote on the subject at: www.papergame.com/articles.htm called "Clearing the Calculator Confusion".
A second factor is I've always wanted better ways to invest with the "Yuppie Plan". The people that have a good cash flow and money to invest monthly, but not large sums yet. This technique is perfect for them.
The third thing is I like to always try to find better and better solutions for note sellers. MANY don't really need cash, but need more cash flow instead. This includes seniors, new rest home residents or anyone whose income has gone down or expenses have gone up.
So, THE AMORTIZED PARTIAL is a way to combine the needs of both investor and note seller in a synergistic way. Here's an example:
Note seller has a $50,000 note $500 per month for 216 months at 10% interest.
Their real need is greater cash flow and a thousand a month would be perfect. To sell the note and put it in CD's or the "Down Jones" would be costly in the long run. They take the discount and then reinvest likely at a lower rate than they had on the note (10%). A double loss or discount.
I make them the proposal to buy their note for a payment of $1000 per month for 50 months. A total of $50,000. They forgo the interest, but also do not take a hefty discount (about 15,000). It's a tradeoff, but they are ahead of the game from the original plan of sell the note at a discount and re-invest at a lower rate than the note rate.
My yield is just over 15%. My cash flows are:
$ - 0 - = Initial Cash Flow
$ -500 = Cash Flow 1
50 = N1
$500 = Cash Flow 2
166 = N2
IRR = 1.266From a marketing standpoint, you can market this through seniors, retirement homes, nursing homes, HEAT programs, Social Security and others.
Mortgage brokers can use it to increase their client's income if they have notes. They can sell the note on an installment plan and now qualify for their loan - fully legit.
- Re: The "Amortized Partial" staged funding approach LINDA 15:56:05 4/17/2002 (0)