I have a lady that called on my recent ad, “I buy houses and mortgages”.
NOTE DETAILS…
Collateral: Mixed use property (gift shop for 20 years)
Value: $250,000
Note: 1st $165,000 (only financing on the property)
Interest: 7.5%
Term: 20 Years (no balloon)
Month Pymt: $1,329.22
First Pymt: 4/1/93
Next pymt due: 4/1/00 (never been late, AA Credit)
Remaining pymts: 162
Remaining Balance: $135,165
Sellers Situation: 66 years old, took back the note when she sold the business. Does not need the money, but is tired of collecting payments. She wants to know what I’ll offer her for the note cash today.
I would like to yeild a min 24%. In order to do that I would have to offer her $63,773 for her $135,165 note. I understand time value of money, but that sure sounds like a steep discount.
Any recommendations on a better way to approach the seller or perhaps a better way to structure this deal?
Ken:
You are correct offering her $63K of her $135K balance is like hittng her over the head with a lead pipe.
You need to counsel with her to find out whether or not she is in sufficient “PAIN” to move away from the status quo; which is the future collection of her payments to a discounted cash amount. If you are able to focus on her REAL cash NEEDS not wants then the possiblity of a creative note purchase transaction opens up.
There are at least 23 different ways to purchase an income stream. She very well may be able to get a lump sum of CASH now and STILL continue to collect some monthly income (a program I am all to willing to make happen).
Keep Probing,Picking, and Peeling back layers of the onion to find out her true needs here.
to offer to buy a partial. Say you’ll buy half the note for a value equal to your 24% yield. Tell her you’ll buy the other half at that time also, if she wants to sell that half to.
You can sometimes take the edge off the discount by offering say $XXX for half & you get to keep $XXX at which time I’ll pay $XXX for that half to.
How about getting an option for $10 to buy at $xxx and then going to the payors to see if they would be interested in Sean’s offer. How about a trip to Hawaii?
David’s right to, it sounds like you need to listen a little more the next time you speak with her.