Here’s your Cash Flow Business Tip of the Week
When you have your written quote back from the funder (perhaps quoted two ways: partial or full purchase), you will need to subtract your fee before quoting the noteholder. There is no set procedure for doing this; some brokers just subtract a straight dollar amount, i.e., $3,000, $5,000 etc. What I like to do, though, is perform a quick calculation with a goal of remaining very competitive while making an acceptable profit. FOR EXAMPLE (and don’t be put off by this reference to the financial calculator– you don’t HAVE to learn this, BUT it’s made REALLY easy with the “5 button” method you learn in the Elite program):
Say, for illustrative purposes, there is a seller take-back note for $100.000 written at 5% for 360 months. The funder wants a 6% yield. Punch in those numbers on the calc, and it tells you that to get a 6% yield, the funder needs to quote $89,537.95 cash for the note (which is the present value–PV– at this interest rate). (The seller gets this PRESENT CASH VALUE right now instead of having to wait 30 years while collecting small monthly payments). Now, if you want to be REALLY competitive, let’s say you figure in a fee for yourself using an additional .5% yield. What you do is calculate the present value of $100,000, 360 payments at 6.5% (a half percentage point yield above what the funder quoted (and you will see that the PV for that would be $84,930.99
So you see that you have a nice spread here to work with:
$89,537.95 quoted by funder
-84,930.99 is what you’ll quote the seller
=4,606.96 YOUR FEE
Obviously, the higher the present balance of the note or cash flow, the more room you have to profit.
(I help Elite members figure this type of thing all the time– it’s part of the help we provide)
Next tip, we will continue.
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