Note Tails

[Joshua Andrews]

I have heard several people refer to "note tails". Or "putting a note tail in my IRA". Could someone shed some light on what that means? I'm guessing it's buying a certain number of payments on a note, or..?

Josh

[Bob E.]

I'll try to keep this brief and assume you are familiar with the basics.

Say you buy a 35k note yielding 15.6% paying $501.86 for 20 years (240 payments remaining) you then sell 105 payments of $451.86 to an investor (the $50 difference is to allow for servicing costs etc.) promising them an 8% return.

Given the 8% return the investor will pay you $34,043 for their 105 payments, leaving you with the tail of 135 payments all to yourself at the end for your total investment of $957 dollars.

That is the idea anyhow. Keep in mind actual milage may very and you have to decide how you will handle things if the borrower stops paying etc.

Would be curious to hear if anyone has done this and how it has worked out, pitfalls etc.