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This episode is a business coaching course that provides information on the definition of amortization.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Amortization: The repayment of loan principal through equal payments over a designated period of time consisting of both principal and interest.
  • Lesson Nugget: An amortization schedule is the schedule by which you pay back the money which you have borrowed.

[THEME MUSIC] real estate taught by Thrive15.com, an alterative to Lynda.com

CLAY CLARK: We are here in sunny San Diego on Thriv15.com, an with Michael "There Is No Real Estate Topic Too Obscure" Burer. And we are talking about one topic that's really just neat and kind of close and dear to my heart. It's amortization. And amortization-- I'm going to go ahead and read the definition, and I'd like you to provide us with an ample example that my mind can handle about what this means. So here we go. Amortization. The repayment of a loan principal through equal payments over a designated period of time consisting of both principal and interest and good times. Can you go ahead and describe what this means?

MICHAEL BURER: So when you borrow money, amortization simply is the term that's used to refer to paying that money back. So typically every payment that you make to your lender is going to include two components, interest, which is their profit on the loan, and then the principal repayment on that is called amortization. So typically you have a loan that amortizes over-- it could be 10 years, it could be 30 years. Basically it's that loan amount divided up over that period of time, payed back monthly.

CLAY CLARK: And I think it's important that the Thrivers know what this is because if you buy a building, let's say for a million dollars for your business. You're going to probably, after 15 years, pay for the thing twice.

MICHAEL BURER: And that will be due to the interest.

CLAY CLARK: Due to the interest.

MICHAEL BURER: The principal is just paying that loan down. So it starts at a million, after a couple years now you owe maybe only 900,000 on it. The difference is due to the amortization, the principal you pay back.

CLAY CLARK: But if you're not careful, and you're not aware of what this term means and how this all works, you might think, well, I'd have that thing paid off in five years for six years. But really it might take 15 because you pay all that interest.

MICHAEL BURER: Because you paid all the interest, right. To improve your cash flow you may want to get an interest-only loan that doesn't have any amortization. So meaning, you borrowed a million dollars and that million dollars is not getting paid down, you're just paying interest. There's no amortization on that loan.

CLAY CLARK: Do you see this a lot?

MICHAEL BURER: Yeah, amortization is an important factor in negotiating the loan terms. What period of time is alone going to be amortized over, if at all.

CLAY CLARK: You negotiate the buying and selling of buildings all the time, don't you?

MICHAEL BURER: I do.

CLAY CLARK: What's the biggest building that you've sold? Like what's the biggest, you know--

MICHAEL BURER: A few hundred million, a couple hundred million.

CLAY CLARK: Really. And when you're in these discussions, you guys are negotiating about this kind of stuff?

MICHAEL BURER: Well when you're working on the financing of those properties, when you're putting debt on them, amortization is an important term that you would consider.

CLAY CLARK: OK. And these are terms like-- if you're watching this and you're not familiar with these terms, the reason why you have to have these terms in your mind is because it's really hard to have an intelligent conversation with somebody if you don't know what these things mean. So this is great stuff to know here. And Michael, before we go, I just want to say I couldn't appreciate you any more if I hired one of those really crafty-- there's a guy out there, he's doing the sand castle, and if we can zoom in and see the guy, there's a sand castle guy out there doing some sand castle artwork. If I had just written your name Michael Burer, B-U-R-E with a sand castle, that wouldn't adequately show how much I appreciate you being here.

MICHAEL BURER: Looking forward to seeing it.

CLAY CLARK: Hey, thank you.

Boom!

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