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Make sure that you understand the tax rules. It could be that with the $500K exemption you dilute the effect if you use an installment sale (carry back paper).

Second, there is no reason not to keep the same idea but secure the paper by other properties. This is mostly to address an issue that someone else pointed out which is you can get paid off when you do not need a lump sum. You are left trying to figure out what you would do with the lump sum. If you are open to paper on a different home then you just re-invest.

Third, the interest rate you are assuming is low by private mortgage standards. I created just under $1M in new 1st notes in Q1 2005 averaging 15%. All were 65% LTV or less so very secure when it comes to the other party having a stake in the property. All were with investors who expect to pay the low off after them make improvements or otherwise change the dynamics of the deal.

Fourth, there is a loan servicing agent (LSA) who collects the checks, mails the notices and otherwise handles the paperwork. They charge $25 to set up the account and $10 per month to service the loan. Hence the fees are not proportional to the loan size. It impacts the yield but you are still certainly doing a lot better then T-Bills as someone else implied.

John B. Corey Jr.
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