Way back in 1998, Bill Broadbent and George Rosenberg published Owner Will Carry, how to take back a note without being taken. On page 10 they said “The Biggest Mistake sellers make is when they sell their property for little or nothing down.”
Everyone wants a margin of safety. If I sell a property for $100,000 and receive a $10,000 down payment, my margin of safety is 10%. If I get no down payment, my margin of safety is 0%. Which position is stronger?
In the 1st case, my PROTECTIVE EQUITY is 10% – in the second, I have NO PROTECTIVE EQUITY. As a real estate or note investment, I want as much PROTECTIVE EQUITY as possible.
This may seem so basic, yet every year I talk to countless number of note holders who disregard this simple premise.
