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How To Rehab Notes To Increase Value

How To Rehab Notes To Increase Value

Bill Mencarow

Paper Source

Presented at NoteCon 2016

Transcript

Ron Happe: Hello, everyone. Thanks for joining me. Today we have one of the very special people in this industry, Bill Mencarow. Bill and his wife Alison have been publishing the Paper Source Journal since 1987. It's the first and longest-standing newsletter in the note business. Bill's also the founder of the note industry's most notable annual conference Paper Source Note Symposium. I personally have attended that since its inception, and in the last couple have been actual, had a booth at both of them. Bill's also authored several guide books, including How to Get Started in Notes Without Using Your Own Funds. He's been interviewed by NVC, the Wall Street Journal, and numerous media outlets. I met Bill just simply signing up for the Paper Source, the symposium, the first time that I went. I was impressed not only with Bill, but with the Paper Source Symposium and the people that were in attendance, and also the speakers that he had.

Bill started in the note business during the '80s, when sour financing was at an all-time high. That was because, of course, the skyrocketing interest rates and the lack of access to bank loans became commonplace, and people that wanted to buy a property needed to find alternative financing, and those that wanted to sell it needed to offer alternative financing. He's now witnessing the next wave of private mortgages as fallout from the subprime lending meltdown. I think that we're going to get a lot of good insight into that market today.

Bill, is there anything that you would like to add to that? I know that you have been in Washington, DC. You spent a lot of time there, as I think in the House of Representatives, working in the House of Representatives. If you have anything that you'd like to add to that bio, I'd appreciate hearing it.

Bill Mencarow: Well, it was certainly generous, Ron. I appreciate it very much. Thank you. Yeah, I did work most of my career in the House of Representatives. I was press secretary, legislative director. I was a general counsel chief of staff. I did leave when I finally figured out that no matter how hard you work or how long you work, you'll never be promoted to the top job, unlike a lot of other businesses. So I became an entrepreneur. 

A lot of people say, "What was it like working in Congress?" My answer is, well, if pro is the opposite of con, then the opposite of progress is congress. That's pretty much how it is. I don't know if you know, but I'm sure you do, but the root of the word politics, the Latin root actually comes from two Latin words. The first root word is poli, which of course means many, and the second word is tics, which are blood sucking parasites.

But we did get into notes a number of years ago.

We did get into notes a number of years ago, Ron, and thank you for your very generous comments about our Paper Source Journal, and about our Note Symposium. We're always happy to have you there. You added so much to the event. But I have to give the credit for getting into notes to our tenants. So if you own rental property, you understand what I mean. When you own a note, you're the bank. When the toilet backs up in the middle of the night, who does the tenant call? He doesn't call the bank, does he.

That's why, although we do invest in single family houses, we also invest in notes, personally, and of course have our newsletter and try to teach people how to invest, or broker notes. Notes produce income. I have some slides, if I can put up some slides if you like, to kind of indicate, or illustrate a little better what I'm talking about. 

Why do I think notes are better than a lot of other income-type investment such as, say, United States bonds, treasury bonds? Well, here's one reason. There we are. As of today, August 31, the yield on the US treasury bond, 30-year bond, is 2.23. That's near the all-time record low in the history of the United States. These low yields have made it very difficult to earn a decent level of income. You just can't earn a decent level of income from traditional fixed-income vehicles. 

Here's a chart of the historical interest rates, and you can see how they've dropped. There's a six-month CD yield, a one-year CD yield, a five. These are all bank CD's. It's ridiculous. It's even worse overseas. Germany, Switzerland, Sweden, Japan government bonds have negative interest rates. You give the government $100 to hold for a year and you get something like $97 back. So you would only pay a government to hold on to your money if you're just absolutely stupid, or you feel for some reason that it's safer there than in a bank, or buried in the back yard.

Let me go back to.

Ron, one of my guiding principals is that good judgment comes from experience, and experience comes from bad judgment. I've always thought that has a lot of wisdom to it. I know you and I probably have made bad judgments, me probably more than you. But I've got some lessons that I've learned in life, and I'm balancing our investments with notes and with some real estate, as I said, and precious metals. I think it's important for people to understand, particularly beginners, real estate is for long-term growth, and notes are for cash flow. Properly purchased real estate will throw off some cash flow, but it's an investment for the future, yours and your heirs. Notes provide a lot more cash flow than real estate. But unlike real estate, they're guaranteed to depreciate. I think of a property as a growth stock with a small dividend, and a note as a bond with a healthy return. So which ones you want to buy depends on your goals. You may wish to invest in both.

When I'm talking about notes, I want to get clear I'm talking about real estate notes, primarily secured by trust deeds or mortgages. People do invest in all sorts of other things, as you know Ron, receivables like leases, lottery payments, structured settlements, royalties from books, from patents, from music, sports contracts, oil and gas well royalties, farm program payments, cell tower billboard leases, much more. But today I'd like to talk with you about investing in performing and re performing real estate notes.

Ron Happe: Outstanding. I know that you've had a lot of experience in the cash flow business in general on the Paper Source Symposium. As a lot of people that do invest in all of those different assets that you talked about, lottery winnings, and so on and so forth. But I think primarily our audience today is interested in that performing and re performing note business that you're such a knowledgeable person about. We appreciate your sharing that with us.

Bill Mencarow: I'm happy to, Ron. We all know the value of compounding money. That's what note investment is all about. Today, if you put $10,000 in an account for 40 years, at 1%, which is about the rate, what you get at a local bank savings account, you'd have about $15,000. If you put it in a CD at 2%, up $22,000 at the end of 40 years. If you put it in a note, obviously notes don't last for 40 years, but I'm talking about putting that money into a note, and when it expires you buy another note. At 10%, you'd have over half a million dollars. That's the power.

Think of interest rates. Well, if I can get 5%, 5.5%-6%, what's the big deal. Well, over time it's a huge deal. What if you could negotiate just 2% more on that note? Instead of 10% you get 12%. You'd get over a million dollars, at the end of a long term, 40 years. But if you did it, again rolling over these notes constantly. So just 2% earns more than double over a million dollars. I think it's important for people to understand that.

Ron Happe: Most people don't.

Bill Mencarow: Well, no, they don't. What did I read recently that most people don't have $5,000 at this point.

This is how to avoid being most people. If you're young, you can do the 40-year plan, or the 30-year plan. If you're older and wiser, tell it to your children and your grandchildren. Consider buying a note with them, teaching them the ropes on how to do it. Help fund it for them. Let them see how it grows for them.

There's a little formula I like to use. Take the number 65, and subtract their present age. Say you're talking to your child or grandchild. Subtract their present age. Let's say they're 14 years old. So 65 minus 14 is 15. Fifty-one years is 612 months. Well, if you plug that into your calculator, 612 months, and say they got a 12% yield on their note. For every $100 they put in that note, by the time they reach 65, they'll have $44,000, $4,424 in fact. Show them that for every $100 that they can put into a note, it'll grow to over $44,000 when they're 65. Think about it. Every $1,000 will grow to $441,000. Every $10,000 they put in a note will grow to over $4 million. That's what I like to talk to kids about, to get them excited.

Ron Happe: Yeah.

Bill Mencarow: I think the easiest way to invest in notes, and the most secure, and the most profitable, no risk investment, plus a high double digit return, is to pay off notes on which you are the payer. Contact the person to whom you owe money. Try to negotiate a discount with them. Even if you can't you should pay it off anyway. But paying off a note, if you think about it, it's the same as buying that note. Because each month you'll have that payment in your pocket, instead of giving it to the note holder. So that's the same as buying a note that paid you that amount each month. But you'll still have that money in your pocket. It's better, because you never have to worry about a missed payment, or the credit of the payer, or the property.

Ron Happe: Can you expand on that a little bit, Bill? How would you go about, when you said, paying off the note, or negotiating a payoff at a discount with somebody you owe money to? Can you expand on that just a bit before you-

Bill Mencarow: All right. Let's say that you owe somebody on a, just take an example, on a car. Let's say you bought a car from somebody, and you're making monthly payments to the private individual. Or you're making payments on a privately held second mortgage that you bought a house, and you're making monthly payments to that person. The key is, it's a deal with a private person. You can't really do this with a bank or a company. They don't understand what you're doing. 

You go to that person and you say, "You know, every month I'm paying you $1,000. Well, how about over the next year, I'd be thinking okay, that's $12,000. How about a 15% discount if I pay you all the money right now?" Well, if you put that into a financial calculator, no matter what the figures are, if it's a 15% discount, you get, I think it's like a 32 point something percent yield on your investment. Because you've got that money in your pocket. That's like buying a note at a 32% yield. That's a way to do it, and where's the risk?

Now you say, "Well, I don't have $12,000, or $12,000 minus 15% to give." You could borrow that money. You're sure going to borrow it for a lot less than 32%. So you'll still profit.

Ron Happe: Tom Henderson, who is a speaker, has been a speaker at a lot of your symposiums, is that, I'll pay you 10 payments for 12 payments. I think that returns that 32% to 35%. That's one of his favorite things, too. You can do that with your lease. If your landlord is willing to do that, or if you, it's doubtful if your mortgage company would, like you say. But if it's a private investor, sometimes cash is very important to them. That's a good one.

Bill Mencarow: Absolutely. Try to do this around Christmastime, or particularly in January, when people's credit card bills are coming in for Christmas. Might be a good time to do that.

Ron Happe: Yeah, right. Right. Any other big fortune makes that notes provide that you have insight to?

Bill Mencarow: Yeah, I've prepared a few slides. Let me go over to those. Okay, let me show you how I negotiate a little bit sometimes. I'll hold up a $10 bill with a note holder. Then I'll hold up a $100 bill. What is that. I don't know how that got in there. I'm sorry. Just let me go to the next slide. Somebody slipped a slide in there on me.

Ron Happe: Yeah, right. [crosstalk 00:15:54]

Bill Mencarow: That was for you, Ron. I'll hold up a $10 bill and a $100 bill, and I'll say, "If I were to offer you a choice between this $10 bill you can have right now, and this $100 bill you can have six months from now, what are you going to choose?" Well, of course, they'll always choose the $100 bill. But I'll say, "How about the $10 now and the $100 a year from now?" If they still say, "Well, I'd rather have the $100." I say, "Well, how about the $100 in two years, five years, or 10 years?" At some point they're going to take the $10 now, instead of the $100 later. So then I tell them, "Well, you just told me that a $10 bill is worth more than a $100 bill." 

Why? Because it all depends on when the money is paid. That's what we call the time value of money. Doesn't matter what's printed on the paper that we call dollars, or call real estate notes. It only matters when the money is paid. So when you're negotiating with a note owner, use that $10 versus $100. Show the bills in your hand. Have them in your pocket, in your wallet, to help him understand why his note, his piece of paper, is simply a promise to pay in the future. That's what a note is. It is not worth today what the amount that's written on it is. So you can get that into their head.

By the way, Ron, as you know, some people say, "Well, notes seem complicated," and all that. Do you know that everybody owns notes? Everyone owns notes. If you look at a dollar bill, what does it say on it? It says Federal Reserve Note. Every bill is a note. The difference between a real estate note and a dollar bill is that the real estate note is secured, while dollars are secured by nothing. Now I know you're going to interview G. Edward Griffin on NoteCon. I think everybody ought to watch his interview. They should read his book, "The Creature from Jekyll Island." I've read it at least twice in the last few years, about the creation of the Federal Reserve and what a fraud it is. I also highly recommend- 

Let me give you, here we go. "The Creature from Jekyll Island," his book, and of course, his NoteCon interview with you. I also highly recommend "What Has Government Done to Our Money?" by Dr. Murray Rothbard, "Economics in One Lesson" by Henry Hazlitt, "The Road to Serfdom" by Dr. Frederich Hayek. Those are all books that everybody, everybody should read.

I didn't show the slide on, we're talking about dollar bills, by the way. If you look at a dollar bill, you'll see it says, "This note is legal tender for all debts, public and private." When I worked in Congress, we talked about introducing a bill that would, in Congress, a law that would change that little wording on the American dollar bills. This is what we wanted to change it to.

Ron Happe: All debt.

Bill Mencarow: Yes, all debt. That's the truth. That's the truth. But you asked me to show some examples, some more examples, so let me do that. There are books, again, that I recommend. This is what I call lowering the interest rate and increasing the yield. Say you buy a note. It's got- This, by the way, everybody should know. I know you know it well, Ron. It's called the matrix. It's not anything to do with the movie. But it's a matrix of this. N is the number of payments. I is the interest rate. PMT, of course, is the amount of each monthly payment, or how often it's often made, usually monthly. PV is present value, what's it worth today.

So you buy a note that is 120 months, 10-year note, 8% interest it's paying, $121.33 is the amount of each monthly payment, and it's a $10,000 note. This is fully amortized right here. Now if you can negotiate to get a 14% yield, you would pay $7,814 to get those $121 a month for the next 120 months. Okay?

Now, let's say you offer to cut the note payer's interest in half. Because remember, the note payer's not affected by this. I'm making this simple for the beginners out there. We'll get into much more complicated stuff in a few minutes. The note payer's not affected when you buy this note. He's still making his payments $121. The only thing that changes for him is who he makes the payments to. You're buying it from the person who holds the note. You buy the note, so the person you bought it from says, "Hey, Mr. Jones, you're making these payments to me, but now make them to Mr. Mencarow."

So you talk to Mr. Smith who's making the payments and say, "You know, you're paying 8%. That's an awful lot. How about cutting that to 4%? I'll be willing to cut your interest rate to 4% if you think you could afford $242 a month instead of $121." Now this is not going to work every time, I grant you. It's going to work with some people. As we'll see later, hopefully, you don't even have to double it. But let's say for simplicity's sake, we double it.

Now what's going to happen? He cuts it to 4%. We cut the payment to 4%. His payment is increased to, excuse me, interest rate to 4%, his payment is $242.66 now a month. He still owes $10,000. But what's happened? What's happened? Well, this new calculation dropped the number of payments from 120, remember 10 years, 120 months. When you plug that into the calculator it says that note will fully amortize in just 44 months. So the original was 120 payments times $121. The total amount that he would have paid over those 120 months was $14,559.60. You show him that if he doubles up on his payments he'll only have to do it for 44 months. He'll save over $4,000 over the time of the note in interest, and he pays off his note in about a third of the time.

Now, why in the world would you want to do that? Well, you've got money coming in over less time. You're not getting as much money over the period of time. Why would you want to do it? Well, here's why. What's the value of your note now? There it is, the new PV, because you paid, that's what you paid. You paid $7,814. The new value of your note, if you plug that into a calculator and solve for PV is $9,916. So the value of the note has gone up by $2,000, and you paid $7,814 for it. If you plug into a calculator, your yield jumped from whatever it was, 12%, to 17.75%.

What else could you do? Okay, you could sell this note for a 6% yield to an investor. What would the investor pay? He'd pay $9,916. I'm not sure that's right, but I'll go on. I'll pretend it's right. But it's about right. You'd make a couple thousand dollars doing that, is the point. 

Next one here is one I call this Payor Saves Big. Let's say you find this note again, same note. You negotiate to buy it for a 12% yield. What does your calculator say? You pay $8,457 for that. Now, remember I said, the payor says, "I can't double it." But how about paying $100 more in a month? That drops the number of payments to 54. He's still paying 8%. But you show him again, 120 payments on his former note, $14,600. New note, $221 times 54 is $11,000. He's saving $2,600. He pays off his note in less than half the time, four and a half years instead of 10. So it's a win for him, and it becomes a win for you. As we showed on the other one, what's your new position in this note? You've got a 16% yield. What are you going to do with that? Hold it for a 16% yield, or sell it to an investor for a 6% yield? Private investor. He pays $10,451 for that note. Your profit in the note is almost $2,000.

What else could you do? Sell the note for what you paid at a 6% yield. You get $8,457. It's 43 months to amortize that amount. Let me explain this. You sell this note at a 6% yield. Put it in your calculator. There's the amount of monthly payment. That's the present value. That's 43 months. So an investor would buy that note. He would get 43 months of this payment. What happens to the rest of them, because there were 54 months? But he's fully amortized in 43 months. You've got 11 months. Then it comes back to you because the payor is still paying $221.33 for 54 months. You get $221.33 per month for 11 months with nothing invested. You might have to go through this again to follow these numbers. But that's an infinite yield investment.

Or sell part of the payments for a monthly cash flow, plus a huge yield. Okay, you've got 54 months. The restructured note, 6%, $121.33, a present value of $5,729. You've got $100 a month for 54 months with a $2,728 investment. Remember, you bought the note for $8,457. You sold 54 payments for $5,729. That left your investment in that note of $2,728. What's your yield on your $2,728? 34%?

Ron Happe: Now that you, people may ask, is that really possible? Can you do this kind of stuff? Well, we showed one of our investors how to do this. She's doing it a little bit differently, in that she would buy, she does buy a note. Then she sells half the payment of that note to another investor, and she's been, let's say she buys a 12 yield, and she sells it for an 8 yield. She sells half of it. She just is doing that over and over. I think she's done it 15 times now.

Bill Mencarow: Absolutely.

Ron Happe: She picked up on this. Before we were finished, she had sold two of those before noon on the day we were showing her how to do it. It's amazing. Because of what you showed us with the current yields, 8% to somebody on a secured real estate note is a pretty attractive return right now.

Bill Mencarow: Ron, you make a very good point. Because people have to remember. This isn't just some promise to pay. It is secured by, should be secured by a good piece of real estate with a good amount of equity in it.

Ron Happe: Right.

Bill Mencarow: Absolutely. Absolutely.

Ron Happe: Turned that 12% yield into a 34% yield, and you do it over and over and over again.

Bill Mencarow: Exactly right. Imagine, if we have time, we'll talk about doing that on a Roth IRA.

Ron Happe: Yes, okay.

Bill Mencarow: Where you don't pay tax. That's right. That's right. Well, let me go on to another one. I call this playing the percentages. Okay, you find a long-term note, I just came up with 333 months left to go on this note. At a 9% interest, it pays $270 a month, and the present value of that note, the balance of the note is $33,000. That's how it works. Now you try to buy this for 14% yield. That means you'd pay the note holder $22,657. It would be your offer for that. Now, it's unlikely a note holder's going to accept that. That's a huge discount, isn't it? Especially if he doesn't understand the time value of money and all that, he's going to say, "What, are you crazy? I'm not going to do something like that."

Okay, well, how about if you say, "Well, Mr. Note Holder, Mrs. Note Holder, there are 333 payments left, with a $33,000 balance. How about if I buy a third of the remaining payments, 111, for a third of the balance. I'll pay you $11,000. I'll pay you a third of the balance, if I can get the next third of the payments, 111 payments." So here's your new position on the note. You get 111 payments. You paid $11,000, $270 a month. Here's your yield. 27% yield.

You can play again. Try it again. What about buying a fourth of the payments for a fourth of the balance? What would that be? Well, there were 333. A fourth of 333 payments, what's a fourth of the balance, $8,250, $270 a month. There's your yield, 36%. You can play around with these numbers. Learn the financial calculator and start playing around, and you will be amazed. Now, not everybody's going to accept this. Maybe only one in five, one in 10 might accept it. So what? You keep going, and you keep playing with it.

Do we have time, Ron? I don't know how we're doing on time, but I've got about 200 more of these.

Ron Happe: Well, we're just fine on time.

Bill Mencarow: Okay. All right. Well, let me go on to another one. Let's buy a note that I call buying a note for full price. You find this note. It's 120 months, 10-year note. It was written at 11% interest. It's got monthly payments of $206.63, and the present value is $15,000. You offer $15,000. Sounds good so far. You pay the note holder a third of the balance now, for a third of the payments. When that's done, he'll get the next third for the next third of the payments. In other words $5,000 now. Then you get a third of the payments, 40 payments. Next, when the 40 payments have been paid, then you give him another $5,000. Then you get the next 40 payments, and then finally the last $5,000 for the last 40 payments. Now what is your yield on your investment? Each time you get 40 payments of $206.63. You paid $5,000 for those 40 payments. What are you looking at as a yield on your investment? 33%.

Next one. Dealing with long-term notes. Long-term notes, because they're paid over a long period of time, as we talked about with the $10 bill and $100 bill, long-term notes are discounted steeply because it takes a long time to get the money. So you find a 30-year note, 360 months. It's written at a 5% interest. $268 a month is paid and it's a $50,000 balance note. So the discount the seller would have to take to provide even a 12% yield to the investor is about 50%. In other words, to get 12% on your investment, you'd have to give them only $26,000 for that note. 

So what do you do if you find a note like that? Well, one way to handle it is to buy the next 120 payments. What happens? You buy 120 payments, 12% yield, $268. You pay $18,708. Now what happens after you get your 120 payments? Remember it's 360 payments on the note. Well, the seller gets the note back. So he gets the payments. What's the balance going to be? Let's go back to our original note. This deal wasn't done. This is just an example. The original it was $50,000, and you bought 120 payments. What's the balance of that $50,000 note going to be when the note seller after 120 months gets the note back? It'll be almost $41,000, $40,671. Why is the balance so high? Because in an amortized note, interest is paid off early, and then it starts digging into principle. So the balance is quite high. 

So you show him, he gets $18,708 now, and when he gets the note back, $40,671 remains, and then he's going to get 240 payments of $268 a month. He's gotten $18,708 from you, plus he gets 240 payments of $268. He gets a grand total of $83,082 for his $50,000 note.

The bottom line to a lot of this is, you can trade hours for dollars, or you can trade ideas for millions of dollars. These are all ideas that work in the real world. Again, I'm not going to say they work every time. It's not a get rich quick plan. It's a get rich slowly plan. But it's going to work, if you keep prodding it. I think, Ron, your example of the woman that you talked about is a very good one, because it shows people that it can be done.

Ron Happe: Yeah. Not only can be, but is being done. I know that you know, and we certainly know, there are a lot of people that are doing this very thing.

Bill Mencarow: Absolutely. Absolutely. Well, let me give you one more. I don't want to just keep throwing numbers at people. But they may want to go back through these slides and make sure that they understand everything. By the way, I'm available. As my friend John Shaub says, I'd rather have you contact me by email, because sometimes I turn my phone off, but my email is never turned off. You're certainly welcome to email me, and I'll give you my email address on a slide at the end, but it is wjm@papersourceonline.com. If you have any questions about any of this, I'll be happy to do what I can.

But the thing I'd like to leave us with, oh, there's what I just said. Well, how about that? Oh, yes, I was going to say this is the world's greatest retirement plan, but actually this is the world's greatest retirement plan. So I guess my idea is the second most greatest retirement plan.

Ron Happe: Yeah, we can apply for the second, but probably not the first, right?

Bill Mencarow: Right. It's not going to be the first for me anyway. But so we'll call this the world's second greatest retirement plan. But I think it's better than any plan offered by any broker, any financial planner, any company anywhere. There are no fees to set up this retirement plan. There are no annual fees. I'm going to use a $10,000 note just to be consistent. But plug in any numbers you want. So let's pick some name just out of the air. I have a little story here.

Just before she was going to be foreclosed on and thrown out of her house, a Mrs. Clinton sold this house, as you see on the screen, to a fellow named, oh, I don't know, let's call him Mr. Trump. Mrs. Clinton took back this note, 120 months, 10% yield, $132.15. She's owns this note. This is our old favorite 10-year 10% note. Mr. Trump is paying to Mrs. Clinton on this note, $132.15 per months, and is going to do so for the term of the note for 10 years. Well, you buy that note from Mrs. Clinton for $8,000. The reason she sells it to you at a discount is she claims she's broke, and she wants cash now instead of getting that $132 a month for the next 10 years. So you give her $8,000. She signs over the note to you. She writes a letter to the note payor, Mr. Trump, telling him to send his monthly payments to you from now on. Of course, I've skipped some due diligence steps to keep it simple.

So you've paid $8,000 to receive $132.15 a month for the next 120 months. What is the interest or yield you're receiving on your investment? Well, you plug the numbers into your financial calculator. You're getting an annualized interest or yield of 15.3%. That's what it says right there. Wow.

However, we're only beginning. Then ask a note investment firm, you contact a note investment firm. We have a registry of note investment firms. If you're interested you can get one from the Paper Source. How many monthly payments of $132.15 would you expect to buy if you invested $8,000? Well, let's say the firm is currently investing. They look at this note. They do their due diligence. Say, "Okay, we want to buy that note at a 9.6% yield." That means, they say, "Okay, we'll buy 83 payments of $132.15 to get our 9.6% yield, to pay you $8,000." So you assign them the next 83 payments of your note. They wire you $8,000. You tell Mr. Trump now he has to mail his payment to them every months.

So what has buying this note now cost you? Obviously, nothing. You bought it for $8,000. You sold it for $8,000 at a lower interest rate. You sold 83 payments for $8,000. So you got no skin in this game whatever. At the end of the 83rd month, the investment firm has received all the payments they bought from you. They're out of the picture. But remember, you bought 120 payments from Mrs. Clinton. Mr. Trump has agreed to make 120 payments. So who gets the remaining 37 payments? You do. Just as we saw before. You have zero invested in this deal. So what's the yield on your investment. Well, don't put that in your calculator, because it's going to freeze. The yield is infinite. You get money every month with nothing invested.

Think about doing this, not once, not twice, but 10 times, or 20, or 40, or 100 times. Then think about doing it with a tax-free Roth IRA. See, that's why I call it the world's greatest retirement plan.

Another thing I'm going to say is, don't feel guilty about making money. Money is not the root of all evil. The Bible doesn't say the money is the root of all evil. A lot of people think it says that. But if you look it up, 1 Timothy 6:10, "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."

Entrepreneurs create jobs for people, and they create a healthy economy. Socialism kills jobs and economies. Ron, I visited the, let me see if I can go back to the screen here, so I can see you. Entrepreneurs create jobs for people and they create a healthy economy. So you shouldn't feel guilty about making money. Socialism kills jobs and economies. 

Ron, I don't know if you know this, but I visited the Soviet Union as an old enough to be able to remember it in the 1960s. I saw how people lived. It was atrocious. They put all their money into armaments, and they left nothing for the people. Of course, they destroyed the economy by being socialists, by being communists. Alison, my wife Alison and I have been in Cuba twice in the past 10 years, most recently, I think it was in 2012. We saw men farming with oxen. Our waiter was a physician, because he could make more money in the tourist industry. Doctors in Cuba make the equivalent of $35 US a month.

History has proven over and over again that a top-down bureaucracy always fails, except for the elite, the party members, who get fabulously rich. Castro lives in a mansion surrounded by guards and walls and all that. But under socialism, the people suffer. They die, either by starvation or by execution. I was talking to a member of the communist party in Cuba who was our guide. He was a professor at the University of Havana, very well educated guy, spoke perfect English. We had a few beers one night. He said to me, he said, "A lot of people think that you can't leave Cuba." He says, "That's not true at all." He says, "You can leave Cuba." He said, "I've been to Europe. I've been to South America."

I said, "Yeah, but you're also a high ranking member of the party." The more beers we had, the more he got friendly. He said, "Well, the way you can leave the country, there's no law against leaving Cuba. You just have to get a visa from where you want to go to, and you have to apply for permission from your employer. That takes about a year, if you get it. It costs about an average year's salary to pay for that visa, if you can get that. Oh, also, if you go anywhere, your family has to stay in Cuba. But you're free to leave." That's socialism. 

Margaret Thatcher said the trouble with socialism, eventually you run out of other people's money.

Ron Happe: Right. Well, you've shown people how to make money. It's my desire that those that may not be involved in this business of note investing, at least get educated on it. Do some of these calculations so that they understand they're not complicated. They're out there to be done. It's not hard to find somebody that wants an 8% yield, that if you can buy them at 12, or you can get them to participate with you. It's just a great business to be in. Bill, you've done so much to educate people, and to show people the really good guys in this business. I appreciate you being on with us. I'm sure everybody that watches will benefit greatly.

Bill Mencarow: Thank you, Ron. Thank you.

Ron Happe: See you at the next Paper Source Symposium, and read with eagerness the next newsletter that comes out. I devour those things the day they arrive.

Bill Mencarow: Thank you, Ron.

Ron Happe: You can get ahold of Bill. He does answer his emails quickly. There's also a link that you can push on at the bottom of the page and go directly to Bill's website. One thing that Bill has, that I don't think he mentioned, and I have most of what's on that website as far as educational materials. There's just so much that other people have written and published that Bill has on his website. One of the things, bill, that you talked about earlier, that has been somewhat of a key for me, was you have a course, or a book, Owner Financing, and it included step payments. You kind of touched on changing the payment, doubling the payment. 

One of the things that I've found really fascinating and has helped me is creating a step payment for somebody that is willing to pay an additional amount of money. Let's say you're going to pay $100 more a month this year, and then another $100 more a month next year. What that does to their ability to pay their loan off very quickly, and what that does to the investor's yield, I found that to be very enlightening. We use that often. There's just a lot of stuff on that website that people should take advantage of.

Bill, thank you very, very much.

Bill Mencarow: Well, I sure appreciate the opportunity, Ron.

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