There’s an old Italian proverb that more or less says a man can steal a whole loaf of bread if he does it a slice at a time. This incorporates two principles:
1. It is very unlikely that anybody will ever miss something that small.
2. Nobody is likely to be very upset over the loss of a small slice of bread.
Negotiation is at the heart of business; in fact, negotium is Latin for business. It is often what makes the difference between a good deal and a fantastic deal, or between a profit and a loss, but as the foregoing proverb points out, in it most effective form, it is invisible.
What are some of the ways that our proverbial slice of bread can be stolen? Through financing. The banks do it every day. They sweet talk their customers into believing that they are solvent by posting all their deposits as assets on their windows, when they are really the summation of all the loans depositors have made them, so are really liabilities. Nonetheless, we eagerly cue up to give them our money at interest rates far below the rates they charge others when they lend our money to them. Somehow, most people don’t understand that the safety and security banks promise is based upon all those risky loans they’ve been making to speculators. Through advertising a false image, they steal our slice of bread.
What about something as simple as inserting the word “including” instead of “with” when referring to interest. Suppose you signed a $100,000 Note that called for ten annual payments of of $10,000 per year with 10% annual interest; the annual payment would be $11,000. But, if your Note called for ten payments of $10,000 per year including 10% interest, your payment would only be $10,000. At the end of ten years when the loan was paid off, you’d have saved $1000 per year, plus the interest this might earn, compounded for ten years.
Using a carefully worded purchase contract is another way you can obtain big benefits with small changes. Once I found a simple purchase contract that I liked, I inserted all the phrases that I like, omitting only the names of the sellers, the legal description, and the price. What I did insert were phrases which included the following:
1. I put in the foregoing “including interest” clause on any loan the seller might agree to carry back.
2. I put in a clause that said all personal property on the premises is included in the purchase price at no value. This is called a “front porch”. It’s intended to be sacrificed in return for a tit-for-tat concession on other provisions of the contract. For example, I might trade this off for a clause that stated that the transaction would be closed only when I had gotten a qualified tenant or buyer. This would remove some costs and risks that otherwise might have been present.
3. I put in a clause that said that anytime either party wanted to cancel the contract, he or she could do so by paying $2000 to the other party as full liquidated damages. I don’t believe in holding someone to a deal that they don’t want, but if they intend to “shop” my deal for a better one, at least I’ll be paid for my trouble. Also, if I find a better deal, I can pay them $2000 an move on to it.
4. I put in that I would take title “subject to encumbrances, restrictions, easements, encroachments, liens, and covenants of record”. This avoided my being liable for situations created by the seller or prior owners and made it possible for me to take over existing payments rather than paying liens off.
5. I made the contract between the seller and me, or my assigns. This enables me to sell the contract for a profit without having to take title myself. When you don’t have much money, selling contracts is an excellent way to jump start your cash flow.
What do you like about this? What don’t you like? Can you use this information?
