Posted by mike-tx on April 11, 2000 at 11:46:18:
Can’t tell you how marketable the notes would be but you should secure them against the property itself, either as a deed of trust or mechanics lien.
Storm Shelter Paper - Posted by Lynn
Posted by Lynn on April 11, 2000 at 11:37:44:
John,
Have you ever heard of someone selling the above?
I am in the Manufacturing business and have the ability to mfg metal underground storm shelters. We live in north West Texas ( the beginning of tornado alley).
We plan on selling these completely installed. After taking your course and now having a basic understanding for paper, I think we could build, install and carry the paper with a down payment from the customer.
My question is: How marketable would a note like this be, given decent credit?
Most of the deals would look something like this:
1,000 Down
2,900 @ 16.5% for 30 Months = $118.63
I realize these would be almost impossible to repossess, any other ideas for collateral to make note more safer for note buyers? We plan on keeping most of the notes for ourselves, but for cash flow reasons we would have to sell a few.
Any help would be appreciated.
The incentive - Posted by John Behle
Posted by John Behle on April 13, 2000 at 11:53:44:
I didn’t elaborate on the major incentive in doing a collateral conversion with those notes. As unsecured notes they can sell, but it is in the range as high as 20-30% yield. That means either a heavy discount to you or “Consumer finance” rates for the payor.
With real estate as security, then the yield range is less than half that - depending on LTV, credit, etc. That also builds in the ability to be very flexible in terms to the payor/buyer or sell (or borrow against) your paper with little discount.
Re: Storm Shelter Paper… another thought - Posted by Eric C
Posted by Eric C on April 12, 2000 at 23:38:13:
Hi Lynn -
Mr. Behle has given you some great advice, but I think that William is mistaken. These notes can be sold, pledged, traded, or otherwise managed to take advantage of the profit opportunity. The key is to look at these notes and market them to the proper outlet (read that to mean whomever will pay you the most for them).
Besides the “usual suspects”, RE note buyers, I would also be checking my local commercial paper buyers, Blazer, Associates, Household Bank, etc. Many of the small banks in your area will also handle small commercial paper.
In fact, I think that if you put some thought into it, you could provide much more attractive terms for your buyers with little or no penalty (discount) to yourself.
You don’t say what your actual cost is, but as long as the profit is there, almost any reasonable terms can be arranged.
If you’d like, I can provide more specifics (this is not a solicitation) and illustrate how I’ve done some similar things in the past.
Yours,
Eric C - currently living somewhere other than West Texas, but I surely do miss it.
Collateral Conversion opportunity - Posted by John Behle
Posted by John Behle on April 11, 2000 at 12:06:38:
As you mention, Storm Shelter notes wouldn’t be easy to repossess. That type of addition to a property should be an automatic lien on the property, but there is no reason you shouldn’t make it that way from the start.
As part of your financing, create a trust deed and trust deed note. Most of the time you would be in a second or higher position. In many cases the LTV ratio would be acceptable and it would be a very saleable note. In some cases the LTV might be less attractive and you would need to hold the note, trade it or sell a partial. So, you could sell off the notes for cash that you can and keep the ones that aren’t as easily saleable for cash flow. Eventually the LTV ratios will improve and you COULD sell those too… - but would you want to?
Another possiblity is to look at ways to finance and keep the notes. Especially if you can put together financing at a lower rate than your notes or the yield you would have to discount them to. I just gathered up many of the articles and posts I’ve written relating to financing and funding paper on my website and there is a good index there of those and many other articles and posts that might help out.
Re: Storm Shelter Paper - Posted by William, Columbus, OH
Posted by William, Columbus, OH on April 11, 2000 at 12:01:47:
Lynn:
Those notes would not be marketable to national note buyers due to their small size. Has to be $10,000 or higher, generally speaking. You could possibly market them to small local buyers. I have a Realtor that belongs to my local REIA group and he will buy small notes (depending). My concern would be how does one pursue collection on a non-performing payor? It would seem a common Promissory Note could be used and one would pursue collection via small claims court. Getting a ruling in your favor might be easy enough but collecting on it is another matter.
How does one reposses the shelter? I feel the idea is
a good one, though. To your success I offer my best wishes.