Ever watch the TV show Shark Tank? A business owner pitches a panel of investors, offering a stake in his company in exchange for a financial investment. Sometimes a bidding war develops as the “sharks” like what they hear and want in on the action. Most of the time though, the business owner hears “I’m out.” Either the business is too new, the market is not there for the product, the business owner is asking too much and giving away too little, etc. Bottom line, the sharks see a business that is not investable. They don’t see themselves getting their money back at all or in their time frame.
Somewhat similar, this is what we do in the note business. Given what the note holder is telling us, does his note appear to be marketable? Is this note situation a proper place to invest funds? Will we get our money back and make a profit?
Several years ago, a note industry estimate was that as many as 70 % of owner carry notes were not marketable. My own casual experience tells me that about 50 % of the folks I talk to have a note no-one will buy.
Why?
We won’t buy a note that is not in 1st position. We will not buy a note if payments are not being made. We will not buy a note if the property is not occupied. We may not buy a note if the property is in terrible condition, located in an isolated area or a crime ridden area. We may not buy a note if the terms are so poor that it appears we have a foreclosure in the making. We may not buy a note if the payor has a poor payment history in his credit report. Will he make the required note payments over the next, 10, 20, 30 years?
So, the goal for any noteholder is be in the 30 % group – NOT the 70 % group if he wants his note to be attractive to a note investor. Sometimes, in his haste to sell his property, a noteholder will create a problem for himself by selling to the wrong person. The end result? Late payments, then no payments, then foreclosure.
Reality requires sellers to take a business like approach in finding the right buyer and negotiating the right terms. If not, the noteholder is likely to hear “I’m out.”
We can answer your questions and guide you on terms before you agree to sell your property. Call me.
