Help me understand some math from "Invest in Debt" by Jim Napier

[Jeff L.]

This is from page 98 in the book.

• Johnny owes you $10,000 -- interest rate is 10%, payment is $132.15, number of payments is 120.
• He's going to sell his house so he asks you for a discount if he pays it off now.
• You agree to satisfy the debt for $8,000, because the interest at $8,000 is now apparently 15.6%.

Can someone explain this to me? Why is this transaction beneficial to you? You just lost $2000. Why is the interest higher? I must be missing something about present value, which is a concept I'm still trying to grasp.

[Gail Greenberg]

Well, one big piece of info you left out is what did you pay for a note with a face value of $10,000? If you didn't overpay, an $8000 payoff is going to give you a profit immediately AND why would you forego the extra $2000? Velocity of money. You build wealth by taking your profits and redeploying as fast as possible. My fellow note-investors all have a standard - if a performing asset is paying them, say, a 25% ROI, they keep it. If not, they sell it. It's important to have defined goals and a system that guide your decisions.