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Article by Ed Lisogar

Increased profits through Seller Financed Transactions

Putting extra cash in your pocket through past, present and future seller financed Deals.

Every year business brokers across the country consummate transactions where seller financing has been required. Most of these sellers are entrepreneurial like your past and present clients, selling one business to invest in another. The majority of these note holders eventually have a need for the capital that's tied up in the note…either at the time of sale or sometime down the road. The Promissory Note created when a Seller finances the sale of his business is a salable asset that can be liquidated in a variety of ways helping a note holder receive the cash he needs now versus sitting on years of smaller monthly payments. In many cases assisting in the sale of the soon to be created note can be the difference between a closed deal and one that falls through.

Would you be surprised to learn that you had the creativity at your disposal all these years but didn't know it?

National Capital Corporation, located in Scottsdale, Arizona is one of the premier business note investment corporations in the United States. They are not lenders, they provide capital through the use of existing or soon to be created seller financed Promissory Notes when a seller carries the financing on a business sale. Listen to what Ed Lisogar, President and CEO had to say recently to a packed house of VR franchise owners at the VR convention in San Diego, California.

"We help business brokers close more deals every year by not only suggesting the best way to structure a seller financed business note for eventual sale into the secondary market, but by also demonstrating to the seller the different options that are available once the note has been created. Most sellers have an idea that these notes can be sold but are not aware there are any options other than a full liquidation. Sellers are always surprised when they see how creative we can get as far as providing exactly the cash they require". According to Ed it is not necessary to sell the entire note to pull cash out of future payments. In fact a full liquidation of the note will provide horrendous discounts. "Because the majority of business sales do not involve any tangible assets like real estate, there is little security or collateral for the noteholder other than taking the business back in the event of a default by the new owner. This makes business note investment a risky proposition. Additionally, time plays an important role in the market value for those future payments. The longer into the future we have to wait for our return on investment (i.e. a long note), the less valuable those future payments are in the secondary market. The combination of time and risk create large discounts. As a result a seller that insists on a full liquidation, particularly if there's more than a few years left on the note is generally shocked to learn that he's looking at about .60-.65/$. There are, however, some attractive alternatives"

How does NCC's services help the business brokerage community?

In many cases "creative" financing is the difference between closed deals and months of time wasted.

Eg. Bob and Judy have a dry cleaning operation for sale. It's well established, in business for ten years. The sale price is fair, the location is great and the business has decent cash flow. It's also been listed for several months. Why? Potential Buyers did not have experience in this type of business. Additionally, they have had spotty credit and only 15% - 25% cash down. Lending institutions, SBA included, are tightening their belts and a borrower's qualifications have never been more closely scrutinized. Result? More Buyers than ever are asking Sellers to carry the financing. This seller, as is likely the case with many of your sellers, would be willing to carry the paper however the cash down they can reasonably expect a buyer to contribute in a typical seller financed deal (20%) does not meet their present cash requirements. The above Laundromat is selling for $200,000. The seller has his eye on another business venture that requires approximately $100,000. In order for a seller financed deal to make sense for him he'd need a Buyer with 50% or $100,000 cash down. He may find one if he waits long enough, but by the time his "white knight" rides in with the $100,000 cash down the other business venture may be long gone. As a result the seller has no choice but to hold out for an all cash buyer. The business sits…and sits…and sits…

"We generally find that very few sellers actually require 100% of their asking price in cash at closing to satisfy their present cash needs" Ed states. "Most sellers have a specific cash requirement from their sale however that requirement generally exceeds the down payment that a prospective Buyer has in hand. Our first question is always "How much cash does the seller truly need from the sale". We generally find it's equivalent to about 50%-60% of the asking price for the business. By determining exactly how much is needed, we can generally supplement the cash down the buyer does have through the use of the seller financed note that's about to be created". This is accomplished through a creative program Ed calls a Partial. "A partial is a simple assignment of a certain number of future payments. The Buyer makes his monthly payments to us for the number of payments assigned. Once those payments come in the note reverts back to the seller and he now receives all of the remaining monthly income. The seller can even repeat this process should he require a lump sum of cash at a later date. This program is helping business brokers close 4-5 more deals a year. The additional income is substantial and the value our company brings to the table is obvious."

Multiple pay days for the broker.

The nice aspect of the partial is that the seller can repeat the process several times with the business broker getting paid each time. "For the Seller it's like utilizing the seller financed note as their own personal line of credit…" Ed says. "Just pull out the amount you need now, and go back to the balance at a later date should you need cash again in the future".

Brokers profit from previously closed transactions as well

Every franchise has closed deals in the past where the seller carried the financing. Accordng to Ed that's cash just waiting to be cultivated in your office's filing cabinets. "Past clients that have sold businesses through your company are prime candidates for many of your present listings…" Ed says. The problem is that their cash is tied up in the note they created when they sold with seller financing. Ed's company offers a cost free program, paid for by his company, that not only paints your company in a nice light, but also alerts past clients to the cash flow service your association with National Capital can now provide. "We continually put cash in the pockets of business brokers nationwide through an informative, tasteful mailout program, assembled and paid for by our company. We provide a proven, response generating letter to your past clients that comes from you on your letterhead. It lets your clients know that even though their business sale closed months or even years ago, you are still available should they need you. An unexpected letter like this is a terrific "service after the fact" for your clients. We handle all aspects of the mailout including the cost. More importantly National Capital Corporation pays a 2% referral fee of the funded amount for any transactions closed as a direct result of the mailout or verbal referral". As their investments hover around the $100,000 range that's an additional $2,000 per deal going right into your pocket.

Ed is quick to point out however that the 2% referral fee (while substantial in itself) is not the only reason to participate in the program. "Helping a client get his cash out of a long term note now frees him up to review your present listings. A seller with cash that has worked with you previously could very well be your next buyer. More closings mean more commissions in your pocket. All that's required from you is a little time assembling a mailing list from past files. Think about the time, energy and cost you presently expend in cultivating new leads. You have all the leads, all the motivated buyers you could use just waiting for you right there in your filing cabinets". Ed points out that many offices hire high school students at minimum wage or have their receptionists going through closed files to assemble mailing lists of past clients. "Pulling addresses from successfully closed deals can provide thousands of dollars in added referral and commission income to every franchise. All it takes is a little initiative. Unfortunately a surprising number of brokerage firms fail take advantage of our offer. I'm always surprised to hear that to some brokers an hour per week is too much of an effort in return for potentially thousands of dollars in added income".

Better yet...

Ed Lisogar is a keynote speaker at several financial industry conventions each year, is a noted author with two best selling manual/software publications, is a regular contributor to several industry publications and periodicals and is an Advisory Board member of a prominent secondary market web site. An expert in secondary market acquisitions he can be reached by telephone at 602.370.5670, fax at 707.885.0304 or by e-mail at ed@nationalcapitalcorp.com.

He can also be found on the web at www.nationalcapitalcorp.com



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