BROKER SCRIPTS

As a Cash Flow Consultant it is important to know what to say in any situation whether it is to educate and inform the prospactive seller or answer any questions or objections that they might have.The following are statements that will be helpful in answering questions that may come up during the negotiation of a deal.

 

Mortgage Notes

1. That's not enough money.

You can count on this statement coming up as an objection from the seller of the income stream. Make sure that they are comparing apples to apples and not apples to oranges. Consider the following example:  Sale price $150,000   Down $25,000   First mort  $125,000  30 yrs at 9%, monthly payment of $1005.78. And lets say in our example, 42 payments have been made. This would give a current balance of $121,643.81(this is the present value of the remaining 318 payments at the original 9%). You come up with an offer of $103,694 (11% yield) for all the remaining payments (full offer). The seller will be looking at their balance of $121,643.81 and feel that they are taking a big discount. The reason it looks so large is that it is spread over 318 months or 26 1/2 years. The Time Value of Money really comes into play here. We can see this more clearly in a PARTIAL. Lets say we will offer $58,740 (11% yield) for 84 payments (7 years) of the note. The present value of the 84 payments is $62,513.21(at the original 9%). The discount looks way less than the one they will be taking on the full offer because it is over a shorter time period (ie. 7 years vs 26 1/2 years) and the yields are the same for both offers.

2. They multiply the number of payments and compare it to what you are offering for the partial.

Lets look at our previous example. You are buying 84 payments in the partial offer. The seller multiplies 84 x $1005.78 and gets $84,485 and feels that you are not being fare at all with you offer of $58,740. This is very easy to overcome. Tell them yes, they would have collected $84,485 over the next 84 months but that  includes interest for that 84 month time period. We are looking to buy those payments today, without all of that interest. If they can't understand that then refer them back to the current balance of the note. Remember the balance after 42 payments had been made was $121,643.81. Use their own logic against their reasoning. Multiply the payment of $1005.78 x 318(total remaining payments) and you get a large number of $319,838.04. So in their logic if the payor wanted to pay them off today they would pay $319,838.04 not the current balance of $121,643.81(after 42 payments had been paid). Obviously the payor would not pay the note holder $319,838.04 if they paid the note off today because that includes all of the interest over the next 318 payments or 26 1/2 years. No matter how hard headed they are they will now see the reasoning of your offer now.

3. Why the partial offer is attractive.

The seller of the note can get a lump sum of money now and then receive payments again after the partial. Also, there will be a balance on the note after the partial is over and the seller starts receiving payments again. In the above example, the seller would get a lump sum of $58,740.47 for 84 payments now. When we met the seller and bought the 84 payments the balance of the note was $121,643.81. After the partial is over and the payments start going to the original note holder again the balance of the note will be $110,763.55. The seller of the note has only lost $10,880.26 in principal balance. In summation, the seller got a check for $58,740.47 and only lost $10,880.26. Not bad at all!