This is just a reminder of the different steps you can take to make your note more valuable, or in some cases, even marketable to a note buyer.

1. Obtain a credit application on your buyers. What will this credit application tell you? To begin, it will list the place of employment of your buyers. Not only will it give you an idea of your potential buyer's ability to make payments, it makes a note buyer feel warm and fuzzy to know the payor has a steady work history. The credit application will also give insight to other assets your potential buyer might convert to cash, or exchange as a down payment. And last, but not least, the credit application will furnish you with the payors' Social Security number, so if you decide to sell your note in the future, a credit report can easily be obtained. Many note buyers will not purchase a note unless they have the SSN of the payors. (Along these lines, I have found a funder who will purchase notes without SSNs if there was a substantial down payment or substantial equity in the property. Call me for details)

2. Obtain a credit report from your buyers. If they have below 600, your chances of selling your note is greatly reduced. How do you obtain a credit report? Have your buyers go to myfico.com and furnish it to you. If they cannot afford the $40 to furnish you with a credit report, what is this telling you?

3. Get as much down as possible. I would insist on AT LEAST 10% down. Without an investment, what is the incentive for your buyers to "fight" to save their property if things get tough? Getting an acceptable down payment is especially true if you wish to sell your note.

4. Sell your property at MARKET VALUE. If you sell for less than market value, you are taking a "double whammy." You are discounting the house, then discounting the note. On the other hand, if you sell your house for more than market value, and choose to sell your note, when the note buyer does the appraisal and the value comes in less, the note buyer is either going to back out of the deal entirely, or reduce the note purchase offer to reflect the true value of the property.

5. Avoid short term balloons. These are foreclosures in embryo. If your buyers cannot get financing now, what makes you think they will be able to get financing in 3 years. If you must have a balloon, I suggest at least 7 years.

6. Make the interest rate realistic to both your buyer AND YOU!! In other words, do not charge your home buyer 15% interest, when you know they cannot afford it. More importantly, do not UNDER CHARGE the interest. I see more and more home owners who anxious to sell their property, charge interest rates at 4%, 5%, 6% and even 0% interest. This is fine if you wish to keep the note forever. However, if you want to sell your note in the future, the discount is going to be heavy. In today's market, you need to charge between 9% and 10%.

7. Keep good records of your payments. Make copies of all checks, money orders, or deposit slips. All note buyers will require some form of verification of payments.

8. Obtain a lender's policy at the same time a title policy is purchased. The cost should be around $150. This will save you money if you decide to sell your note in the future.

If you apply all of these steps, not only will your have created a good note for your portfolio, but also you will have maximize the value of your note should you wish to sell. If you decide to sell your note, and for some reason had to charge less than market interest, your buyers have "dented" credit, or the property is not worth as much as the price it was sold, consider strongly selling a partial of your note. Many scenarios will allow you to sell a portion of your note for only a little less than a full price offer, while at the same time, allowing you to get the note back with very little reduction in the balance of the note.

In the mean time,
Merry Christmas
Happy New Year.

If you have any questions about how to structure notes, or have notes to sell, Contact Me.

Copyright © H&P Capital Investments LLC. All rights reserved

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Origin of the "Laissez- Faire"

Will all the political intervention into the free market, along with out right myths and falsehoods being conveyed by politicians and "experts" alike, I decided rather than give an economic observation of the results of our all knowing, all caring politicians' recent actions, it might be better in this Holiday Season to give a brief history of the term laissez-faire. I say this because I recently saw a photo op of a meeting of "business" and Obama to determine the best way to get the economy moving forward. It reminded me of the origin of the term "laissez-faire", and the similarity to today's debacle.

Laissez faire is a French term which means "Let Alone" or "Leave Us Alone". In 1680, under the reign of Louis IVX, the French economy was in disarray because of abandoning free market concepts. King Louis, who made the statement, "I AM THE STATE", decided to solve his economic woes by appointing Jean Baptise Colbert as his finance minister. Colbert was a protectionist/mercantilist, who believed government intervention was the solution to all problems, and initiated strict regulations of manufacturing and labor. Among his rigid regulations were preventing French labor from migrating, establishing protective tariffs and prohibiting certain imports, and even prescribing how cloth was to be woven to ensure quality, no matter if the cloth were to be used as a dress shirt or a rag. If regulations were not followed, there were stiff penalties. Like all government control of business, those firms which he look upon favorably got rewards, and those who were not obedient were punished. It seems our politicians of today had the same philosophy on taxation as did Colbert, when he declared, "the art of taxation consists of plucking the goose so as to obtain the largest amount of feathers with the least amount of squawk". Needless to say, Colbert's economic concepts had devastating consequences on production, which put the French economy in a further tail spin. (Sounding familiar?)

Like Obama's meeting with "business", there was a meeting between Colbert and local businessmen led by M. Le Gendre. (Before some of you accuse me of being political, these same type meetings were held by presidents from Nixon, Papa Bush, Dubya, Clinton, Reagan and Carter and others) Colbert asked the businessmen what he could do to help them. It was at this point M. Le Gendre replied, "Laissez-faire" or leave us alone, go away!! Le Gendre realized the source of the economic chaos---government intervention in the market place. Of course being the statist that Colbert was, he could not comply with the plea to get out of the way, and continued his statist policies. As a result, the French economy deteriorated even further.

Likewise, in a recent meeting between Obama and business leaders, Obama asked the same question as Colbert/ "What can I do to help". Would it not have been wonderful if instead of telling Obama, "You need to lower taxes", "You need to provide financing" or "You need to protect us from foreign imports", one of our "businessmen" of today would have stood up and said, "GET OUT OF OUR WAY!!!". It seems the business community of 1680 France was more attuned to reality than the business leaders of today.

Contrary to the image being portrayed by politicians, it was not the "greedy", "money hungry", "capitalistic pigs" who coined the phrase "laissez-faire", but in reality it was only the plea to the government by the producers of France , who were experiencing first hand the disastrous effects of regulation, tariffs and protectionism "laissez-faire" or leave us alone. This plea, as well as a warning is as true today as it was in 1680. The next time you hear the term "laissez-faire" be reminded of its origin.

If you have questions or comments on economics, please CONTACT ME.
MERRY CHRISTMAS
HAPPY NEW YEAR

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All rights reserved