RealNumberz Financial Freedom Accelerator Lesson 6: (Case Study) How a SIMPLE SOFTWARE PROGRAM Saved 5 Private Loans from Going South
When a note investor finds out that a note is going to pay off early, that can be a really great piece of news if you have structured your note correctly. However, I recently had an experience with not one, not two, but five early payoffs that very nearly ended in disaster.
What’s worse: I would never have even known how much money I lost!
Here’s what happened:
I received notification that several of my private-money loans were about to paid off early. I was happy because they were going to generate some solid yields, and it is always nice to see that cash infusion from a note paid-in-full.
Part of the process when a note is paid off early is that the borrower sends you a statement of what is owed and what they plan to pay. They do this so that you, the lender, can then compare that with your own records and make sure everything matches up. Most of the time, however, note investors just see the payoff amount and go with it as long as it “looks right”. It’s a dirty little secret in our business that no one really likes to admit but pretty much everyone does.
Thank goodness I did not go that route.
Because I keep all the information on my private loans in my RealNumberz portfolio, I figured I ought to at least double-check the numbers I was getting from the borrowers. After all, it was just a matter of about five minutes to pull everything up – or I could have had my bookkeeper do it for me using her customized subaccount. In this case, however, I did it myself. After all, I already “knew” that the payoffs were right…
Except for one thing: The payoffs were wrong. Really wrong.
I almost accepted thousands of dollars less than I was owed on those notes simply because the numbers “looked right” at first glance! And here’s the thing:
- My borrowers were not in trouble
- The parties involved in the payoff were not trying to “get away” with something
- I would have had very little, if any recourse later when I realized the error if I had not checked on my notes before I signed on the line and accepted the terms
This happens all the time in note investing. Lenders take less than they are owed because at the end of the day, they have no idea what they are owed!
Think about it: There is an entire division of the federal government dedicated to making sure banks explain how lending works to borrowers. It’s called the Consumer Finance Protection Bureau (CFPB). It exists because people legitimately did not understand how interest payments on their loans worked back before the housing crash in the mid-2000s. Is this because “people are dumb?” Of course not! It’s because this stuff may not be rocket science, but it’s very tedious and sometimes full of minutia that is boring and hard to track. Often, investors just don’t have the time or the patience.
You have to take the time and have the patience. Fortunately, using RealNumberz requires very little of either.
Take a few minutes to look at the “Investments” section of your RealNumberz account. Click on “Lending” even if you do not have any private loans at present, and create a sample lending deal. Once it is created, take a few minutes to review the deal, including clicking the payoff button to see exactly what it would cost to pay off the loan today.
You can see that payoff calculations are much easier once the transaction is loaded into RealNumberz, and you can also see how easy it was for me to identify an error in the payoff amount on the loans I was dealing with when I almost lost thousands of dollars to inadvertent error.
Today’s lesson is a simple one: Take the time to make things right.
While you might usually hear this kind of statement in conjunction with making amends or apologizing to people you have hurt, in this case, I mean make things right with your bank account! You have a responsibility to your assets to make things right when you “settle up” on a note. That responsibility doesn’t have to be a hassle if you take a few minutes to look at your RealNumberz.
See you tomorrow!
Paul