- How to explain discount to a note holder
Published: Wed, 05/15/13
A free service from The Paper Source
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May 15, 2013
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In this issue: What To Say When The Note Holder Asks,
"Why Should I Take A Discount?"
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Hi ,
It's very difficult to buy a note from someone who doesn't
understand that future payments are discounted. Below
I share with you one of the best ways I know to explain
why the discount is fair. When you can get them to refuse
$100 in favor of taking $10, the light comes on!
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Enjoy!
Bill
W. J. Mencarow
President, The Paper Source, Inc.
www.PaperSourceOnline.com
www.PaperSourceUniversity.com
www.PaperSourceSeminars.com
www.cashflows.org
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When The Note Holder Asks You,
"WHY SHOULD I TAKE A DISCOUNT?"
By W. J. Mencarow
It's very difficult to buy a note from someone who doesn't
understand the time value of money.
Most people cannot understand why they shouldn't get (as an
example) $10,000 for their $10,000 mortgage note. "After all," they
might say. "It says $10,000 right on it."
Since you are offering him less for his note than what he thinks is
"fair," many times the note holder just won't trust you.
I have often found the following approach to be successful:
Pull out a $10.00 bill and a $100.00 bill. Offer him his choice:
1) The $10.00 bill right now, or;
2) The $100.00 bill six months from now.
Most people will choose the $100.00 six months from now.
Then say, "how about the $10.00 now or the $100.00 year from now?"
If he still says he'll take the $100.00 a year from now, keep
increasing the time it will take for him to get the $100.00 until
he chooses to take the $10.00 bill now.
Your response: "You now understand the time value of money.
Actually, you understood it all along. We all do, it's just that
most of us haven't put that name to it. You have told me that a
$10.00 bill now is worth more than a $100.00 bill a year (2 years,
3 years, whatever he chose) from now.
"So the important factor is not what amount is printed on the piece
of paper -- whether it is a dollar bill or a mortgage note -- but
WHEN YOU GET THE MONEY."
"Your note has $10,000 written on it, just like this bill has
$100.00 written on it. But your note is like this $100.00 bill that
you don't get for a long time. It's value depends on when it is
paid off."
So he doesn't think you are trying to trick him, point out (before
he does) that his note provides monthly payments and the $100.00
bill doesn't. Tell him that is why it is more valuable than a note
that does not have any monthly payments, and you will pay him more
than you would for such a note (there are such things, of course --
balloon notes, where all the payments plus interest accrue to be
paid in one lump sum at the end of the term).
Don't get into detail. Don't try to impress him with what you know.
That's not why you are there. You have a choice: You can impress
him with how knowledgeable you are, or you can buy his note.
Keep it simple. You have one job to do in this mission: You must
make him understand that it doesn't matter what is printed on the
piece of paper -- whether it is a $100.00 bill or a mortgage note
-- what matters, what determines value, is WHEN THE MONEY IS PAID.
Did you like this article? You can get many more like it, plus the
latest news of the note business, new note investors, new laws,
court decisions, etc. affecting the business, interviews with the
experts and much more every month in THE PAPER SOURCE JOURNAL.
With your subscription you also get the 2013 PAPER SOURCE REGISTRY
OF NOTE INVESTORS AND SERVICERS, plus the E-Registry on the
Internet, the most accurate compilation available of true note
buyers (not brokers) and what they buy.
We've been doing this for over 25 years, and we know who the real
players are.
See http://papersourceonline.com/paper-source-journal/infosubscribe/
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information for me. I've been a subscriber for most of your years
of publication."
--Nick Buschur, Grants Pass, Oregon, #1 Broker for
the largest note investment firm in the world for an unprecedented
3 years in a row, est. annual volume $15.8 million.
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The best education on cash flow note investing and brokering
is at The Paper Source University: http://papersourceuniversity.com/
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