Re: Depression? - Posted by John Behle
Posted by John Behle on March 31, 2000 at 12:24:22:
First, there are a lot of scenarios and assumptions here. Depression, borrower can’t pay, rents won’t cover payments, etc.
That’s fine, it’s possible and should be planned for. First off, I believe investments should be kept separate from your personal finances. Especially in the area of liabilities.
So, you do your investing through corporations, trusts, etc. to shelter yourself personally and those entities are the borrowers. Avoid a personal guarantee on a note. That isn’t to say you don’t do all in your power to solve a problem if one arises. You should be in a position where if the economy goes down the tubes and investments tube - that you and your family aren’t destroyed in the process.
If the scenario you described were to happen, it isn’t just “your” problem. It involves the investor also. So, you could build a clause into your note that addresses that worst case scenario - as in the investor will agree to accept a lower payment or a moratorium on the payments in case of a default.
If you end up with the property and the rents are low, then the investor accepts a lowered payment for a while. This also addresses their “worst case scenario”. That is the situation the investor would end up with anyway, it’s just more cooperative than taking you out in the process.
Even a depression turns around. What can be more likely is a regional downturn. It’s a matter of watching - “market timing”. If the market starts changing, then your strategies would too. Lower LTV’s, liquidate notes, work with payors on early payoffs, “loss mitigation” techniques if the payor has troubles, etc.
I have a book that I don’t really market much any more called “Getting Paid”. It addresses collections and in particular avoiding foreclosure. There are some excellent loss mitigation techniques and collection strategy. It really kind of needs a re-write to be more orderly, etc. but hey - why not.
Until I re-write or include it in with other materials. I don’t want to see people without the value it contains. I’ll have some of the information posted at my site sometime today. I’ll start with an article I wrote years back called “Throw the Old Couple Out” (the article is about the opposite scenario - creative ways to help an old couple with a payment problem - without throwing them out)