Posted by Steve W (WA) on March 04, 2002 at 07:33:26:
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What about early payoffs? - Posted by Steve W (WA)
Posted by Steve W (WA) on March 02, 2002 at 23:32:59:
I had a potential buyer throw me a Q today that I didn’t have a ready answer for. He was cool with the finance model I proposed, and liked the minimal paperwork, but then he asked,
“What about penalties for early payoff?”
to which I answered, no penalties. Then IT came up,
“What about a discount for early payoff?”
I thought for a minute, then expressed that the price I was offering was V-E-R-Y good as it was, and that I did not often even consider early payoffs [This is my first deal :)!]. So he answered his own question with an added chuckle:
“So, no penalty, but no discount either, eh? OK”
I like that; let them answer their own questions . . . Whew! But that got me to thinking - I haven’t read about this kind of thing here, and I don’t remember it in DOW.
(a)There is an “industry standard” of 12.75%; is there an industry standard, or generally accepted commonality, regarding discounts for early payoff? And
(b) is it as simple as it seems - follow through an amortization schedule to the present date, figure the remaining principal owed, and give them that figure as the payoff?
The answer is (b) - nt - Posted by Chuck (AZ)
Posted by Chuck (AZ) on March 03, 2002 at 01:12:39:
nt
Re: The answer is (b) - nt - Posted by Ray - TX
Posted by Ray - TX on March 03, 2002 at 12:41:53:
In this case if you didn’t get to use the installment sale method and paid the income tax up front, would the payoff have any tax consequences?
ray
Thought so - what about (a)? nt - Posted by Steve W (WA)
Posted by Steve W (WA) on March 03, 2002 at 09:48:29:
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Re: The answer is (b) - nt - Posted by Chuck (AZ)
Posted by Chuck (AZ) on March 03, 2002 at 13:06:52:
What planet are you on bud?
Re: The answer is (b) - nt - Posted by Ray - TX
Posted by Ray - TX on March 03, 2002 at 14:01:10:
Chuck,
I’m right here on earth. I’m on this board trying to learn. I value your advice highly. I’ve already learned so much from you. I thought my question was legitimate. What did I do to offend you? Whatever it was, I apologize.
ray
Re: The answer is (b) - nt - Posted by Chuck (AZ)
Posted by Chuck (AZ) on March 03, 2002 at 14:29:21:
It’s simply this bud… what does income tax have to do with the early pay-off of a note?
In my opinion, the answer is - nothing.
Re: The answer is (b) - nt - Posted by Ray - TX
Posted by Ray - TX on March 03, 2002 at 14:56:49:
Thanks,
I thought it might be nothing, but I wasn’t sure. That’s why I posted the question. Wondering about the differences between tax treatment of cash sales and installment sales when early payoff was a factor. Seemed relevant to me. Please don’t write me off as a jerk just because I asked a stupid question. I’d like to think you’ll keep on giving me the benefit of your advice in the future.
ray
Re: The answer is (b) - nt - Posted by Chuck (AZ)
Posted by Chuck (AZ) on March 03, 2002 at 15:04:32:
It’s not that bud… it’s just that SO much of all this stuff everyone seems to want to worry about this week, is mearly common sense (the lack of which is my biggest peeve), if you don’t try to think like a lawyer or accountant… that’s what you pay them to do.
Just use your head and do what seems right, the rest of it will take care of itself.
Re: The answer is (b) - nt - Posted by Ray - TX
Posted by Ray - TX on March 03, 2002 at 15:14:56:
Thanks, Chuck,
I thought your were really getting mad at me for some reason. I agree with using common sense. Unfortunately, I’ve had a couple of unpleasant experiences with the IRS. My common sense tells me to try to understand what they might be thinking of doing to me before I make any serious decisions. I’m still going with what I think is right. Just a little more cautiously than I was before.
ray
Re: The answer is (b) - nt - Posted by GerryH VA
Posted by GerryH VA on March 03, 2002 at 22:33:35:
Ray
Relax… No question is stupid except the one that was never asked.
Good Investing
GerryH