Overview of Partial Notes

  • The partial purchase of a note is an extremely powerful tool available to note buyers and sellers.
  • Both buyers and seller can benefit from this technique.
  • It is a great option to the “take it or leave it” mentality with a typical full note purchase.  
  • It is a great way to recapitalize for the note seller and a low risk high return opportunity for note buyer.

What Is A Partial?

  • This is when someone purchases only a portion of the note and NOT the full note.
  • For example, the note has 300 payments remaining and instead of buying the entire 300 payments you buy only the next 60 payments for a set dollar amount.
  • After those payments are made the note reverts back to the original note seller for the remaining 240 payments.

Types Of Partials

  • Straight Partial (front partial) – purchase of next payments and seller keeps the “back end” or remaining future payments or balloon.
  • Split Payment Partial – The purchase of a portion of each payment for a specified time period and amount with the seller receiving the remainder of each payment.
  • Balloon Split Partial – The purchase of immediate payments up to and including a portion of the balloon payment with the seller retaining a portion of the balloon payment.

Benefits To Seller:

  • Gives seller choices based on needs.  If only needs $30,000 and has a $100,000 note does not have to sell full note.  
  • Minimizes discount to the seller.  The discount is larger when selling a full note versus a partial note. 
  • Can participate in future payments since note reverts back to the seller when buyer collects their designated number of payments.
  • Opportunity to sell another portion in the future since established a relationship with the note buyer.
  • Shared risk for buyer and seller

Benefits To Buyers:

  • Lower ITV (investment to value) reduces the risk and exposure to the buyer.  
  • Residual income opportunity.  The note seller may become a repeat customer.
  • Typically can structure higher yields since seller is happy to get back end of note.
  • Limits amount of money invested.
  • Shortens term for the buyer.  Not “stuck” in one note.  Spreads buyers risk among more notes.

Example Full and Partial:

  • FULL – A note has a balance of  $80,000 at 9.0% interest payable in monthly installments of $1,013.40 with 120 months of payments remaining.  When the seller sells all 120 remaining payments of $1,013.40 to an investor it would be considered a full purchase.
  • PARTIAL – If the investor only purchased the next 48 monthly payments of $1,013.40 each then it would be considered a straight partial purchase.  Once the investor received the next 4 years of payments, the note would be reassigned to the seller and the seller would collect the remaining 72 payments.
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