Few months ago a guy called me. He received a letter from me about selling his note. He began the conversation by saying he would be crazy to sell his note because he was getting 7% when the bank would only give him 1%. Plus, his buyer gave him a 15% downpayment, runs a small business in town, and makes every monthly payment on time. So, why in the world would he want to sell his note to me at a discount when he had such a great deal? He would be nuts, he told me.
I agreed and told him to enjoy the income. He got it off his chest and I just listened.
This conversation got me thinking about why people do sell their notes. The bottom line reason is always the same – better use of the cash. But the specific reason is always personal to the circumstances of the seller. I decided to look at my last ten closed transactions. Here is why these folks sold their notes for cash:
1. Opportunity to buy an investment property.
2. Buy a new home.
3. Pay a big income tax bill.
4. Pay off medical bills and funeral expenses of a close family member.
5. Pay expenses for parents’ stay in a Living Care Facility.
6. Pay off mortgage on an investment property.
7. Selling business and liquidating assets.
8. Buy another investment property.
9. Buy new SUV.
10. Mother in poor health, needs cash.
When opportunity or crisis presents itself, and people need cash, they will examine their options to determine the best source of that cash. If they are a holder of a seller carryback note, many times they were compelled to offer a seller carryback in order to get the transaction completed. Since the seller carryback was not the first option in creating the necessary financing, it becomes easier for the seller to consider liquidating this asset in order to get the cash needed.
If the cash price offered for the note solves the seller’s problem, he will be happy to sell and move on. As always, the goal is to understand the needs of the seller and align that need with the reality of the marketplace. Both parties benefit when this is done properly.
That’s my job!
