I have written before about how note buyers accelerate payments on cash flow notes. One such strategy was the Double Your Payment/Cut The Interest Rate in Half.
Another method is to simply go for an Early Payment With Incentive.
To this day, the following situation is still my favorite example of this method.
It was late December and we were looking at a small note with a $10,000 balance. The payment was only $132.15 per month with a 10% interest rate and 120 payments left.
The note had been purchased at a discount for $6,000, which made for a 24% anticipated return.
Not bad…but we could do better! After talking to the payer we saw an opportunity to get an early payoff. They were very excited about their football team making it to the Super Bowl.
My comment was, “Tell you what. If you can pay off your note, in full, before the Super Bowl, we will give you a big screen TV to watch the game.”
They did payoff the note in full and received their TV!
So here is the math (and the chance for someone to win free access to Finding Cash Flow Notes)…
The payer made two payments on the $10,000 note bringing the balance to $9901.96.
We purchased a big screen television for $2,000.
That means we received a NET payoff of $7,901.96.
The full payoff was made at the two-month mark so we also received two payments of $132.15 prior to the payoff.
What was the yield?
The first person to leave a comment telling me the note buyer “return” wins free access to Finding Cash Flow Notes.
The fine print for calculating this cash flow note:
1. First correct entry wins.
2. I will allow up to a 1% variance due to slight calculation differences.
3. Once we have a winner I will update this article with the answer including how to calculate on your best financial calculator!