Discount? - Posted by Brian

Posted by David Butler on July 30, 2001 at 18:41:30:

Hello Brian,

Frankly, the best answer really is - whatever you can get… if the whole thing meets your objectives. Pretty much like anything else in this world… final price will be a function of what you can live with, what he can live, and whether you have any other competition bidding on the note.

What ever price you do agree on, be sure to get things in writing, and with a firm date for completion.

Good luck and may you enjoy a deep discount :wink:

David P. Butler

Discount? - Posted by Brian

Posted by Brian on July 30, 2001 at 18:15:15:

I own a house with owner financing that is currently rented. I would like to put a new mortgage on the property since I could get a lower rate then the current 8%. The loan is 20 years with a balloon payment. I was wondering what type of discount I should ask the note holder for since he would like the early payoff. I can tell this since he is out of state and the reason he held the note was to avoid taxes that year since he sold other properties.

Thanks

Brian

NEVER say this… - Posted by Michael Morrongiello

Posted by Michael Morrongiello on July 31, 2001 at 19:05:10:

Brian:
You owe this debt to the note holders. Clearly if they are in real NEED of cash, or peace of mind, they very well may accept “something less” than the full balance you owe them on the mortgage note. However what they and you will agree to is as stated completely negotiable.

What one should NEVER say or tip their hand to a creditor that they owe money to is that "I am going to be refinancing and would they accept a pay off at a discount…?

What I have found that has worked for me in the past is to simply state; “Mr. & Mrs. Note holders, I am going to be coming into some cash in the very near future… In the event I can pay you a cash lump sum, what do you feel you can accept as a full and complete pay off of my obligation to you…?” - this will open the door to the negotiation.

Always get some sort of statement in writing from the creditor that states what they will accept and that they will issue the approriate releases or satisfactions in order to remove their lien of record.

Happy finagaling…

To your success,
Michael Morrongiello

Re: Discount? - Posted by Thomas K. Standen

Posted by Thomas K. Standen on July 31, 2001 at 13:36:14:

If you are going to refi and obtain a new loan that has a lower interest rate you are saving money. If you want the current holder of the note to discount the amount owed you will need to set forth an argument that shows benefits to the holder of the note, they don’t care about you and what you want.

So in short you need to think of the benefits to the current holder of the note for an early payoff. This is where Jon Richards book on calculator power can be an asset to you. You will be able to show the holder of the note the benefit of receiving money sooner rather then later.

I have always used the statement “sooner is beter the later” and “more is better then less” when working with investors and trying to get them to accept my proposal.

Good luck. Let us all know how you make out

Discount? - Posted by Jon Richards

Posted by Jon Richards on July 30, 2001 at 20:36:09:

Brian,
You don’t say when the balloon payment is due, so we could not tell you what discount to offer. But if the balloon is a long way off, you have a perfect opportunity to ask for a substantial discount.

In the cash flow industry, we don’t use the word discount, we use yield. If you were to sell the note, a reasonable investor might want a yield of 12%. This discounts a $100,000 note @8%, with a balloon in 60 months to $85,000.

If you don’t understand that, you can buy my book Calculator Power on this site for $39. Sorry for the crass commercialism.

Another answer is that you can get what ever you can negotiate for. Find out how bad the guy needs the money and what he intends to do with it. Ask him first, “If I were to pay off my note, how large a discount could you give me?” Then start you negotiation from there.

Good luck

Jon Richards
NoteWorthy Newsletter
www.noteworthyusa.com