Note Partials: the 10 for 12

[Marco Bario]

I recently included a tidbit about the "10 for 12" in my weekly seller financing newsletter. It generated good responses and questions, which made me think to share the topic here:

Start with the assumption someone has a note which pays $1,000/mo. They need quick cash and agree to sell 12 payments for $10,000.

In the financial calculator it looks like this:

• You give $10,000 now
• You receive $1,000 for the next 12 months
• Your rate of return (IRR) is 35.07%

It doesn’t matter if the note payments are $1,000 per month or $1M/month, the return is always 35.07%.

Another use for the same concept:

Your landlord is always complaining about money. Your rent is $2,250 per month. You offer to pay 10 months' worth of rent upfront in exchange for living in the home for 12 months. Your savings? 35.07%.

A few variations:

• "11 for 12" = 16.38%
• "20 for 24" = 18.16%
• "5 for 6" = 65.66%