In early 2015, a guy called me and gave me a mini lecture on why he would be a fool to sell his promissory note. He said he was getting 7% whereas the bank would give him 1%. His buyer was well known in his town, ran a successful small business, deposited 15% as a down payment, and has made every monthly payment on time. He would be a fool, he said, to sell his note at a discount when he had such a great deal. He would be nuts, he told me.
He finally took a breath and I calmly said “I understand and I agree – you should not sell your note.”
This phone call got me thinking. Why do people sell their notes? So I reviewed every closed transaction for the year prior to this conversation. Here is what some sellers told me as to why they wanted to sell their note:
- Buy an investment property.
- Buy a new home.
- Pay a big income tax bill.
- Pay off medical bills for a family member.
- Pay expenses for elderly parents in a Living Care facility.
- Change of life – selling a business, moving out of state, liquidating assets after a death, etc.
- Pay off mortgage on an investment property.
- Have a cash cushion – waiting for an opportunity.
- Buy a new SUV.
We all want options in life. Normally, carrying back a note is not people’s first option – cashing out is the first option. But when that note is performing and cash opportunities/problems present themselves, it can be a blessing to have that note as an option to consider for the cash source.
It’s all about options!