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.