Selling Note Question - Posted by Shawn

[import]

Posted by Michael Morrongiello on October 09, 2007 at 14:01:17:

Shawn
Love the insight which is well put to you by John Behle in his post;

In our business we suggest you get away from what we call ABSOLUTE “Quoting” - that is finding out what the cash flow or Note’s PRESENT CASH VALUE or worth in the marketplace is and then simply subtracting the commission amount you wish to earn and instead focus on what is called “RELATIVE QUOTING”

RELATIVE QUOTING is derived by taking the time to counsel with the Note seller and finding out what their dreams, aspirations, true cash needs, etc. are BEFORE putting a price to them on the purchase of their Note.

By taking the time to find out NEEDS Vs perceive wants with a Note seller customer - you often can structure a transaction where you might buy some type of a PARTIAL purchase, Fractionalized purchase, Balloon Split Purchase, Staged Funding Purchase, etc. which clearly will meet their needs and also provide you with far more income than Absolute quoting.

Using John’s Example;

If I found out investors where willing to fund $7,500.00 for a $10,000.00 Note @ 10%, payable $132.15 per month over 120 years- the investor Yield on that $7,500.00 discounted amount to be funded or paid for the $10K Note would be 17.38%- If I wished to earn $1,500.00 as a fee for my efforts I would offer $6,000.00 Cash to the Note seller - thereby earning an ABSOLUTED QUOTED FEE of $1,500.00…

However;

If I were instead to find out after counseling with the Note Sellers that they really only NEEDED $3,500.00 in cash quickly right now to solve their pending dilemma I might offer the following RELATIVE QUOTED SOLUTION;

First off I find an investor who is willing to purchase the next 77 monthly installments of $132.15 to become due on the Note who is happy with an 18% Yield on such an investment. Thus they will put up $6,000.00 cash.

You then tell the Note Sellers:

I can get you a TOTAL of $8,259.33 Mr & Mrs. Note seller for your Note. This can be paid as follows:

At closing you will get $3,500.00 Cash NET. Then in 77 months the Note will TRANSFER and ASSIGN back to you with 43 more installments of $132.15 left to run on it @ 10% and with an oustanding balance still due of $4,759.33.

$3,500.00 Cash NOW + the Note transferred back LATER with a balance of $4,759.33 still oustanding and due = equals $8,259.33 for the Note…

More importantly your “Fee” under this RELATIVE QUOTING SOLUTION is now $2,500.00 instead of $1,500.00 above under the Absolute quoting illustration. (the $6K put up by the Note investor - minus the $3,500.00 paid to the Note sellers)

Take the time to find out what the Note sellers True NEEDS are and you can often “build to suit” more profitable transactions for yourself & your paper investor while meeting the expectations of the Note sellers.

My best to your success;
Michael Morrongiello
Author of the following home study courses;

Unity of Real Estate & “Paper”
&
Paper Into Cash- The Convertible Currency - How to Effectively Create Marketable Real Estate Secured Notes

[import]

Selling Note Question - Posted by Shawn

Posted by Shawn on October 09, 2007 at 11:04:25:

When selling a Cash Flow Note,

How do you determine the price for the note?

[import]

The double push - Posted by John Behle

Posted by John Behle on October 09, 2007 at 13:23:23:

The price you sell it for totally depends on the price your buyer is willing to pay. As you get to know your buyers and their parameters well, you will be able to predict what they will pay, but until then, you just need to have them give you a quote on it.

The standard way most people approach it is to get a quote from their buyer, tack on their commission - or subtract it and then quote that lower amount to the note seller.

I’ve always operated differently. I’ve bought the note and borrowed from investors. So, on one end, before we even encounter the note, I have negotiated the best deal and lowest rate that my investor will be happy with. I negotiate that in a way that helps us come to a figure that they feel is good. Much or most of the time it is less than I might have been inclined to offer.

In fact, investors have interesting ways of looking at things. I found early on that an investor might look at one rate as risky and a lower rate as safe - even though the collateral is the same. So, it is best for me to get a lower rate if the investor is happy with one and may suit the investor the best also. I am pushing on one end to lower my cost of funds.

And then, I am pushing on the other end - or negotiating - to get the lowest cost for the note possible. Over and over, I have seen note sellers willing to accept much less than I might have offered.

I think it is a VERY big ERROR to focus on the value first, make an offer to the seller or be too conscious or open about what you CAN offer. One of the first rules of negotiation is “He who names a number first loses”. Anyone who claims that that isn’t the case or that that is just a trite seminar axiom is foolish or inexperienced.

“What do you want for the note?” is a very valid and powerful question. Yes, some people answer it right up front and some people won’t. I learned this most powerfully with a small note of about $10,000. I was prepared to offer as much as $7500 for the note. I asked the important question and he said “Well, so and so, was going to buy it for $6000, but backed out. It’s at the title company all ready to close.” In that case, the question made me an extra $1500, but in other cases it has made ten times that much.

Much of the time their answer is something more like “As much as I can get” and I have ways of working with them and continuing on the negotiations to still find out the price and/or terms they have in their mind as well as the needs the have. It is so much more profitable than just running around as a “Quote machine.”