by Charles B. Hawley
Many experts in the property management field strongly urge
owners to have a very complete
rental application from their tenants. Many suggest using
applications which have a section describing special skills or assets
the tenant possess.
Using a hybrid from this, I have developed a
very simple one page application for my note payors. It asks
their Social Security number, address, celll phone number, and/or day and evening telephone
numbers, e-mail address, nearest living relative and a detailed section on
assets and skills.
I arrange an appointment with the payor to personally meet with them
before I purchase the note. At that meeting, I have them sign my
estoppel letter and complete the payor application. I think it is
very helpful to "press the flesh" with your payors so they
understand that you are not a lending
institution. You must demonstrate that you are a person who will
demand payment of their note but will be fair.
This meeting also
gives you a chance to suggest that it is less expensive for them if
they will pay you early. I have found that when people meet you face-to-face they are more likely to make timely payments.
One of my note payors called me 27 months before the note was due. It was a 10% note with
payments of $125.00 per month with a balance slightly less than
$9,000.00. He wanted to extend the note. We are taught in the note
business to get notes paid off as soon as possible. Any kind of
extension is considered a "no-no". However, I always listen to my
payors. The payor only wanted another 24 months, which didn't seem
excessive. He was willing to increase the percentage rate from 10 to
12 and the payment to $200.00 per month.
I had first interviewed
this payor, and I remembered that he owned two hair cutting salons. I
asked him if he would cut my fainily's hair for free as long
as the note was in existence. He thought that was fine and agreed
immediately.
It is difficult to put an exact dollar amount on this. I
have 4 members in my family, at $12.00 a haircut, 6 times a year, it
is worth at least $288.00. This is really not a bad little bonus
on a small note. You can't exactly calculate the yield (sorry,
"Number Crunchers"). However, for me, there are more benefits
with the note paying an additional $75.00 per month, interest
increasing by 2% for 27 months and receiving free haircuts,
than receiving the balance in 27 months.
Recognizing the skills of your payors can also help you get your notes paid off early. I have a note
of $5,000.00 that has been paying nicely for 22 months. My payor is a
commercial painter and walipaperer. In fact, he wailpapered our
local Holiday Inn. I recently built a new
house and needed some walipapering done. I called him and told
him how much I would pay per roll (wholesale price) and said that he
could do it on the weekend or when he wanted to. I would apply that
to the principal balance owed on the note. He was more than happy to
do this. As a result, two months ago, I had the wailpapering in my
house completed at wholesale prices; and I got part of my note paid
off early.
A word of caution when you trade out the principal on your notes: Insist on getting somewhere between wholesale and retail value for the
service that might come from a payor. Many payors will inflate
their skills or their hourly fee. I figure I am creating a job
for them. Therefore, I should get a wholesale rate for their work.
If I can't, I will not use my payor's services.
In any case, trading out can be
helpful in increasing your yields. I have, over the years, purchased
with my principal haircuts for my family, wallpapering, plumbing skills, tree surgery and automotive repairs. My favorite note purchase was from one of my payors who owns a
winery. I received quite a few cases of wine at wholesale
prices. Maybe that explains why this article is not as coherent
as it should be.
Listen and get to know your payors! Use your imagination with
them to increase your yields. It works!
Charles B. Hawley is a PAPER SOURCE subscriber and
real estate and trust deed investor who lives in Monterey, California.
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