Is there any resale value in 0% interest notes?

[Ray Trounday]

I came across a Performing note that has a 0% interest rate and -255.06 payment.  I am working on the assumption that the -255.06 payment is just interest and it does not pay down principle.  When I arrive at a Yield for this note, I get a negative number.  The original terms are as follows:

Original Loan: $140,000

Interest: 0%

Term: 360

Payment: -255.06

When I plug the numbers above in the financial calculator, I get a negative yield of -2.63%.  Why would anyone offer

a loan that returns a negative Yield?  Are they banking on appreciation of the underlying asset?  What is the resale of such a note?

It seems that I would need to take a serious haircut to entice someone to buy this note.  Thoughts?

[Jay Hinrichs]

Originally posted by @Dustin Mathenia:

@Ray Trounday

It's not on a set year just until that 17k is paid off, something like 48.5 months. I think I will have a 3rd party handle the payment collection. I would never actually sell the note I'll take my cashflow :).

Very early in my sales career about 1980 ish.. and thereabouts when rates sky rocketed to 15 to 20% interest.. we were in the land business. so we owner financed all our parcels.. we routinely wrote 15 to 18% interest rates on seller carry backs.. And then we sold notes to investors to get our profit out and cash back so we could continue to buy inventory. Our family business would routinely sell about 250 to 300 parcels a year like this.. We had salesmen in LA and the bay area.. Even did fly buy programs out of LA.. this is all pre turnkey rental stuff of course.  So i was very aware of PV function its how we based all our sales prices and terms.

So what led us to the Zero interest notes way back then was two things..  One I had some Saudi clients who could not pay interest for religious reasons.. So I toyed around with how the notes would have to be structured to get the same dollar amount out of them as a 7 year 15% fully amortized note which was our go to terms.. its turned out that 30 months Zero interest had the exact same PV value as a 7 year 15%.. so my Saudi's went for it and I sold a bunch of those to them and their relatives and other friends of theirs that i got referrals to.. Mostly all small business owners in SF.

So about the same time I believe it was Datsun ( before they rebranded to Nissan) that came out with the first 0% auto loans so they were advertising those as well so 0% was going main stream.. and you see the auto industry never let that die out totally. You can see those terms today.

So we really hammered on the 0% for those that could afford the larger  monthlies and understood that getting the property paid for ASAP was to their benefit..  So over the years I will always pull that arrow out of my quiver when I want to move a ugly duckling house and not have to worry about it defaulting again.

For all of those that follow the land geek and others who promote buying cheap tax sale desert dirt or FLA cheapo lots this is an excellent way to exit those properties at a premium price even today.  Just like you did with your 17k house there in Alabama.