Any good school teacher will tell you that as much as he wants to educate his students, as time goes by he comes to understand that he learns just as much from them – IF he is listening.
This principle applies to any business. Is the business owner listening to and learning from his customers? I learn from noteholders all the time, good stuff and bad stuff. Here is some good stuff.
Several years ago, over the span of about 6 months, I had conversations with several noteholders who explained to me how they sell their properties and then carry back a note. How? They advertise on Craigslist. They sell terms – NOT price.
Let me illustrate with some simple numbers.
The seller feels that $100,000 is a fair price for his home. He then decides what kind of buyer he wants, and sets specific terms to attract that buyer.
If the seller wants a 20% down payment, here is what the math would look like:
Sales Price $100,000
Down Payment 20,000
Note Amount 80,000
Term 180 months
Interest 6.0%
Payment $ 675.09
The ad would be sweet and short:
“Beautifully remodeled 3/2, close to schools, shopping and restaurants. Your $20,000 down payment and total monthly PTI under $1,000 make you the homeowner.”
He wants to attract a buyer who is willing to commit a significant amount of cash. He may settle for less and he may be willing to move on the interest rate or term, but he is setting the bar for his expectations. And, he has already lined up a servicing company to collect the payments and done his homework on the cost of hazard insurance and property taxes. Now, just attract the person that fits his model.
In the note business we always tell prospective noteholders to focus on note terms that are strong and favorable for them, but fair for the buyer. It is refreshing to get feedback from sellers who are doing exactly that.
