Proficient Note Buyers
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August 31, 2010
Check Your Numbers!
Does your state's lottery commission award you the prize if your numbers are 'close'? Of course not! Then why do many in the business peddle bad data and expect investors to bite? Take the following note presented to me yesterday (everything in brackets is just as it was supplied to me):

[Property State: FL
Property City: TALLAHASSE
Property Type: Multi-Unit
Owner Occupied: No
Date of Sale: 2005-07-01
Sales Price: $3,795,000.00
Property Value: $3,795,000.00
Property Value Established By: Sale
Any Other Liens?: No
Down Payment: $1,045,000.00
Loan to Value: 72%

Position of Note: 1st
Original Amount: $2,750,000.00
Note Balance: $2,750,000.00
Interest Rate: 5.53%
Payment Amount: $ 15,121.21
Date of 1st Payment: 2005-08-01
Payments Made: Monthly
Original Length: 396
No. of Payments Made: 72
No. of Payments Remaining: 324
Day of the Month Payments Due: 1st
Next Payment Due Date: 2010-09-01
Are the Payments on Time: Yes
Balloon Payment Amount: $0.00
Balloon Payment Due Date: 1999-11-30

Are You Personally Receiving Payments On This Note? No
Payors Credit: Unknown
What Does the Payor Do For a Living: REAL ESTATE INVESTOR

Additional Information: 88 UNIT BUILDING RENT ROLL IS GUARANTEE BY GOVERNMENT Built in 1977 on a 6.92 acres. 11 buildings with 8 units, pitched metal roofs, replaced in 1997, exterior is brick with wood sub-flooring. Separate office and maintenance room. There is a card key operated laundry facility and recreational areas on site: soccer field, basketball, playground and BBQ areas. Sixty four 3 bedroom and twenty four 2 bedroom units with central air conditioning. Galley style kitchen with all electric appliances. This is a smooth running, pride of ownership, turnkey business.]

So…how excited are you about this opportunity? Did you catch the three BLATANT errors in this submission? Go back and check again, then come back here where, for your benefit, I’ll point them out to you.

#1 – The note has been seasoned for 72 months, yet according to the broker not a penny has been paid down from the original note amount. (see “Original Amount” and “Note Balance”) I checked the payment, and it is NOT interest only, indicating (using the terms supplied and my trusty financial calculator) the current balance should be closer to $2,541,521 – BIG difference.

#2 – I know the balloon date of 11/30/99 is a typo (since the sale took place AFTER that), so why didn’t the broker notice it was obviously wrong? Leads me to believe he got this from someone else and is not direct to the note holder. I would put money on it. (What do they say about too many cooks in the kitchen?)

#3 – Regardless of government-guaranteed rents, property updates, etc., there is absolutely no way the property is worth today what it was in July of 2005 (see “Property Value Determined By: Sale”). If the seller genuinely believes this property hasn’t lost value over the past five years (especially in Florida!), he is irrational and I will be wasting my breath trying to get him to face reality.

It took me less than a minute to ascertain this note was a potentially colossal time waster. Notice I said “potentially”, and I’m only talking about my time. Some poor broker (or two, or three, or however many get their hands on this note) is going to waste a lot of time looking for buyers based on bad info. Any other buyer out there will look at this note like I did and quickly dismiss both the note and the broker bringing it to them.

My advice to everyone who has a note to sell, be they a note holder or a broker: CHECK YOUR NUMBERS! Remember the old information technology rule: Garbage IN, Garbage OUT. Leave your garbage in the trash can – bring us something we can work with!

Make it a great week.


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