If you have a $100,000 CD in the bank collecting interest, what do you have? You have $100,000 cash plus interest earned.

If you have a $100,000 note at 6% for 30 years, what do you have? 

You have a PROMISE that you will be paid  $599.55 monthly. You DO NOT have $100,000 cash.

I learned this valuable lesson from an "old timer" in the note business who has purchased, sold and brokered over 1000 notes in his career. He has seen, heard, and experienced it all. The good, bad, and the ugly.

A lot of notes are created as a one time occurrence. The seller may never create another note in his life. It just so happened he had a property to sell and the circumstances dictated he use seller financing. Should he decide to sell his note, he may think he should get $100,000 cash for his $100,000 note. He won't. He can't.

Why not?

The risk factor is too great, so a buyer will pay something less than $100,000. How much? It depends. Depends on what? All the risk factors involved in that particular note.

A few years ago, we were involved in transactions where the seller got pretty close to full value for his note - maybe only a 7-10% discount. The marketplace at the time had rising real estate prices. Everyone felt real estate would just continue to go up and up. Remember those days? So a note buyer - institutional or private - was not concerned about the collateral behind the note. The risk of foreclosure was small. The risk of the real estate being devalued was small. The investor paid accordingly.

What do we have today? Real estate prices turned around and began a steep nosedive. Many buyers fell behind on their payments, or worse, lost their homes. Mass foreclosures followed. Then, banks, to get more liquid, started unloading some of these bad loans.

Bottom line, the key risk factors that a note buyer would examine - deterioration of the collateral, inability of the buyer to repay, his collateral being less liquid, and the fact that eventually a rise in interest rates would exacerbate the whole issue - has created a whole new dynamic. In other words, all the risk factors have come into play AT THE SAME TIME.

In addition, some institutional investors walked away from the note business because of this coming together of all the risk factors mentioned above. The end result is we have a much more careful and conservative climate.

The reality is that if you and I have something to sell, we think it is worth more than the marketplace does. This is just human nature. We are emotionally involved. But for commerce to occur - buyers and sellers getting together - reality must set in, or nothing happens. For those of you who have notes to sell, my mission in this Newsletter is to nudge you just a little closer to reality.

Hope you understand.

Sincerely,

Denny Stanz

760-245-5366
760-245-5367 fax
dennystanz@verizon.net
www.CaliforniaNoteBuyerLLC.com