Get Greedy or Get the Note Deal?

Last Friday I got a call that instantly became a call to action!  The caller happened to be local, which is rare since we are not currently targeting local notes in our advertising.  I was immediately interested because the property happened to be less than 10 miles from my location in a neighborhood I know well.  I pulled out a Note Intake Sheet and started asking the seller my usual questions regarding the Land Contract.

 

My first question is almost always, “is this your note, or are you helping someone with the sale?”  In this case the gentleman was helping his mother because she is elderly and in assisted living.  As it turns out, his mother has to sell the note because the assisted living facility has income requirements and she does not qualify because of her current income level.  Now I am thinking to myself, here is a situation where the caller has to sell the note.  I know for certain that I am going to get the transaction because I am local.  I let the caller know I am close by and will give him an instant quote. 

 

I go on asking questions about the sale price, down payment, term, interest rate etc…  I find out that there was a balloon due a year ago and the note holder has let it slide because the buyer has not been able to secure any conventional financing.  This note is technically in default and is something most note buyers would shy away from.  At this time I am thinking-we’ll just have the two parties draft up a formal extension and cure the default.  I realize that the note holders do not want the property back.  While I am on the phone I am checking values and conclude that the home buyer is at about the breakeven point (not under water but, no equity) and that this is why the buyer can’t find any financing.  I ask the seller why they haven’t taken the property back and then I shut up and listened.     

       

Sale Price: $90,000   Down Payment: $4,500  

Note Amount: $85,500   Rate: 8%

Term: 360 months with a 60 month balloon / since passed   Payment: $627.38

Number of Payments Made: 77  

Number of Payments Remaining: 283

Remaining Balance: $79,750.47    

 

At this point the seller tells me about the buyer and that all of his payments have been paid like clockwork.  He also tells me about the property, it is owner occupied home with a small rental unit in back that the buyer is renting out for $450 a month as a supplement to his income!  This was not taken into account when the home was appraised during the buyers attempt to secure conventional financing.  From looking at the appraisal, the appraiser may have ended up talking to the renter in the process and assumed this was just one unit.

 

Now the house payment is only $627.38 a month and as it turns out, the payer has a renter helping him pay $450 of this.  What a deal for the home owner!  Like I said, I know the area and I know you can’t rent anything this nice for $627 a month let alone only $177 after you take the rent collected each month into consideration.  This buyer would be crazy to leave this situation….

 

I have to say by now I am thinking I am going to get myself that I can probably get myself a great deal on this note.  Here we have a situation where the seller has to sell and they are aware that there are some underlying problems due to the lack of real equity on the buyer’s part.  This could be a nice one to buy and hold for yield if I can steal it!  I am almost ready to move in for the kill with my offer when I start to have second thoughts… 

 

The note sellers are in a situation and they are local.  Why should I get greedy here instead of trying to get the note holder as much as possible?  Maybe they have other connections at the assisted living facility that have notes for sale?  Maybe a little good will here could go a long way?           

 

Instead of quoting what would be a killer deal for me personally, I quickly calculate what I know will be a competitive offer and throw it out there.  The seller comes back saying, “I just got another quote for $2,000 higher than that Marc and called you because you are local.”  I tell him we will match the offer and close with a local title company.  I start asking questions (assuming the sale) so that I have all the information to put together a Purchase Agreement and let him know I will be e-mailing it to him within the hour.  The next morning (Sat.) he called with all the usual questions about timing, closing costs, etc.  I answered all of his questions while he was sitting there with his brothers and sister.  He thanked me and told me he was on his way to see his mother and have here sign the Agreement.

 

Now if I was to have let greed get the best of me in this situation, I would have certainly alienated these sellers as I failed to ask them if they has any other offers or what they were looking for before I made them my offer.  A rookie mistake!  The good news was that I took my time to find out all I could about the note and that I built a rapport with the sellers.  It’s not often you get a second chance in this business and this seller gave me one.  I earned it, by letting him know I cared and know what I am talking about in the process of collecting his information.  We won’t make much money off of this note but, you can bet that I will be letting the assisted living facility know all about our services once we have funded the transaction! 

Have a note you would like to sell?  www.creativefundingservice.com