Large Notes, Small Money — And Astronomical Yields | Paper Source Online

By Tom Henderson | January 21, 2021

At least once a month I am asked how to get started in notes with small amounts of money. When you learn the concepts of the time value of money you do not need to wait for the smaller notes, because you are empowered to use other people’s money to purchase large notes to enjoy obscene yields and astronomical profits.

Last November I spent a month on a beachfront property on Dauphin Island, Alabama.  At sunrise I would relax on the front porch and enjoy the serenity of the soothing sound of the waves, while at the same time allowing my “creative juices” to flow by imagining different twists to some note concepts. Here is a down-to-earth technique that will produce astronomical yields with little, or even none of your own money. The simplicity is amazing.

In The Note Professor Notebook* I have a chapter where you can buy half the remaining payments for half the unpaid balance. This will have the effect of doubling the face interest rate.  This method is most useful when N is a smaller number. For example:

You are offered a note for $300,000 at 8% for 15 years, with payments of $2,866.96 a month. The only drawback is the note seller is adamant about not taking a discount. You also have an investor who wants a 9% yield. Start thinking. Can you offer the note seller MORE than the unpaid balance, while at the same time enjoying double digit yields with low risk? What can you come up with?

You could offer the half and half formula by giving the seller $150,000 now and another $150,000 in 90 months to give you a 15.94 yield. However, you really want this note and offer the note seller $310,000 for their note; $150,000 now and $160,000 in 90 months. “But Tom, I do not have $150,000.” Remember your investor. Get out your calculator. Here is what it looks like:

N = 90 (Number of Months Purchased)
I/YR= 15.94% (Your Initial Yield)
PV = -$150,000 (Received by Seller)
PMT = $2,866.96 (Seller’s Payment)
FV = 0

What is the PV of 90 month’s payment of $2,866.96 to give your investor 9%? Did you get $187,139.45? Of course, you could sell the note to your investor for $187,139.45, give your note seller $150,000, and you get a tidy $37,139.45 profit.

This is my least preferable way. Why? Because not only do I lose control, but I also have no claim to the back end of the note.

Here is my favorite method. Have your investor purchase 90 months for $150,000 to give them a 9% yield. What payment would your investor receive? Let’s look:

N = 90
I/YR= 9%
PV = -150,000
PMT = $2,297.98
FV = 0

I love America. You collect $2,866.96 from the payor, then pay out $2,297.98 to your investor. My higher mathematics says this is $568.98 monthly cash flow — with none of your own money invested. How many of these can you do? If you put your $568.98 cash flow for 90 months into your calculator and solve for yield, you will get ERROR.  Why? Because you had no money invested. Your yield is infinity.  (If you want to have some fun, put a -1 in PV and then solve for yield)

It is very important to note at this point that when I use this technique, I DO NOT SELL A PARTIAL OF A PARTIAL. Even though there is debate about the legality of selling a partial of a partial, at best it is a bug looking for a windshield.

How do I get the money from the investor? I borrow the money from them at 9% for 90 months. I will pay my investors their money whether or not the payor pays. “But Tom, how are you going to pay $160,000 for the back end of the note? What happens in the event of an early payoff?” We are going to have to wait for next month’s issue of the PAPER SOURCE JOURNAL for the answer because we are running out of space for this discussion.

Learn concepts, not just techniques, and you will unlock profits others let pass by.  

I will be going over this and other advanced concepts in a LIVE Zoom seminar on February 13, 2021 covering partials, balloons, and wraps. Look for it at

Tom Henderson has been buying notes and real estate since the 1980s. His  tell-it-like-it-is approach has made him a much sought-after speaker, author and instructor nationwide. Tom is considered by many as “the best-kept secret in note education.” He is president of H&P Capital Investments, LLC, which buys, sells and trades owner-financed notes.

* THE NOTE PROFESSOR NOTEBOOK is available at Tom’s website, where you can also sign up for his free newsletter at

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