Posted by Tim (Atlanta) on February 19, 2001 at 13:56:18:
Selling the notes you create is a good way to generate immediate cash, but generating long term cash flow is also a concern for a Lonnie investor.
Why not do both? Why not sell a part of the note you create, instead of the whole thing? Say you complete the following Lonnie deal :
Buy for $3000, put $500 in advertising, lot rent, fixup into the home. You have a total of $3500 in the home. You sell for $7000, $700 down, finance $6300 for 12.75% for 48 months, payment of $168.23 per month for your buyer. You now have $2800 left in the home, giving you a yield of about 67%. Now you don’t have additional cash to do the next deal. Note buyers don’t like newly created paper, unless they can get a partial, instead of the whole note. Say you wanted to recoup your $2800 left in the deal. A partial buyer might want 22 payments of $168.23 to give him a yield of 30%. Now what is your yield? You will get the remaining 26 payments of $168.23 for nothing. Your yield is infinity, plus you have the cash to go to the next deal. If you do this once a month for the next couple of years, what would you have then? A pretty nice cash flow, that is what. You will also find that partials are a much easier sell to your investors than a whole note sale. You are guaranteeing payment on the partial. It is very safe for your investor.