Note Business Tip of the Month 

March 2010

 

For all new subscribers, Welcome! If you have missed any of Armstrong Capital's E-letters just click here to read our Archived Monthly Email Newsletters!

This year we have added a Question of the month to this regularly scheduled "Tip of The Month" e-letter. If you have a question you would like to see answered in this newsletter just email Jeff!

 

*Tip of the Month: 

       Did you know....

           In order to have a successful note business you must be able to dedicate time, effort and money on a consistent basis.

        

*Quote of the Month:

         In essence, if we want to direct our lives, we must take control of our consistent actions.  It's not what we do once in a while that shapes our lives, but what we do consistently."  

                                                                                        - Anthony Robbins

*Question of the Month:

 

Q -   Hi Jeff.... Wow. I called this guy to let him know what our offers were for his Note and BLEW my ear off. He said that I had greatly insulted him after he spent
20-years building the value of a property to $60.0K and we were ONLY willing to offer him 20-something thousand and that we were a bunch of crooks. I attempted to explain that his Note carried a VERY low interest rate and did not have the market value he thought it did. He didn't want to hear it and only kept berating me. I was very close to just hanging up on him but didn't. Any recommendations for the future should something like this come up again? - Bob S.

 

A - Hello! Well, this could be a case of not educating the seller on the very first phone call.  On that first phone call as you are building rapport and finding the need you are explaining the negative factors to the seller. Just as you mentioned the low interest rate, low down payment, long term, odd type of property, short-term balloon, etc. Whatever is a negative characteristic you are educating the seller such as "Oh, you only have a 5% interest rate on your note? Why did you give the buyer a 5% interest rate? IF the seller could qualify for a 5% interest rate, what didn't they go to a bank and get a loan and give you 100% of your money? Our underwriter's are not going to like the low interest rate. That is really going to bring down the value of your note." 

    For every negative characteristic you are explaining this to the note holder and by the end of your first conversation they might even be thinking that their note is worthless. So when you come back to them with ANY kind of an offer they will be grateful AND if they really need the money may even accept one of your options.  In addition, you will never be berated again for offering to buy their note at a discount because they will know up front that their note isn't worth as much as they thought is was. Hope this helps!  - Jeff
 

*Calculator Problem of the Month:

At the request of many of the subscribers to my monthly email newsletters and tips we will now have a calculator problem every single month for you to solve, using the simplest calculator for the note business the HP 10BII.

 

This is a repeat of January's calculator problem since we skipped February's due to the Legal update.  We will have a different calculator problem next month! In December we calculated out an interest only note with a balloon payment in 7 years.  This month let's calculate out the same $250,000 note but it will be a fully amortized note with a balloon payment in 7 years. This way you will be able to compare the differences.

 

Note terms - $250,000 note, amortized for 30 years at 6% interest with monthly payments and a balloon in 7 years. Verify the payment amount of the note and verify the balloon amount of the note:

 

1) With a balloon payment there is an extra step. First step verify the payment amount. This is what we know

 

    N   = 360

    I/YR = 6

    PV  = -250,000.00

    PMT = ???

    FV  =  0 (initially we need to calculate the payment based on the full amortization period of the note - in this case 30 years, even though we now there is a balloon payment in 7 years)

 

        N     I/YR     PV      PMT     FV

     360     6   -250,000   1,498.88   0

 

When we have four of the five buckets filled in we can always calculate for the fifth empty bucket and you should have gotten $1,498.88 as the payment amount.

 

2) Next, now that we have amortized the note and verified the payment we now need to verify the balloon amount in 7 years. Once we have the 5 buckets filled all we do is change one number to get another number.  In this case we will change the "N" to the balloon term of 7 years and solve for "FV" which will give us the amount due after 7 years, otherwise known as the balloon payment. Enter in the known information as shown above and solve for "FV" the future value of the note (push the "FV" button):

 

       N    I/YR     PV      PMT      FV

     84     6   -250,000  1,498.88   224,098.46

 

You should have gotten...   $224,098.46 as the balloon amount

 

Did you get it? The future value amount (balloon payment) on this note is $224,098.46 and at the end of the 7 years the payor must somehow come up with the $224,098.46 and pay the note off (refinance, sell the property, etc). Another way to explain it is that the buyer will make 84 payments of $1,498.99 and one final payment of $224,098.46. Great job! More to come next month!

 

*Highlight of the Month:

 

Spring is in the air and the bass are starting to bite! TWITA!

 

Jeff's Speaking and Instructing Schedule

         Location                    Date                               Event  (click for info & registration)       

Contact Jeff today for information about having him Speak or Teach to your group!

Jeff Armstrong is President of Armstrong Capital. He is a member of the Million-Dollar Club, a Master Broker, visiting instructor for the American Cash Flow Institute, instructor for Nouveau Riche and the author of several best selling industry books. He can be reached by calling 800-845-3055, faxing 818-865-2323, e-mail jeff@armstrongcapital.com, or visit www.armstrongcapital.com and click on "Note Brokers" for answers, articles and information about his Master Broker services and how Armstrong Capital can help you succeed.

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