I am selling my note. Does it matter where the real estate is located?

Yes it does.

Desirability. Attractiveness to a potential buyer. It all counts for something.

Question: Would you rather own a real estate note secured by a nice house located
in Newport Beach, CA.
Or, would you rather own a real estate note secured by a nice house in Akron, OH?

Where the propety is located is part of the equation in pricing your real estate note.

A better example in regards to property location affecting the value of a real estate note would be this:

A guy sold 70 acres of land in Lost Springs, WY for $20,000 and carried back a real estate note for $10,000. (he got a $10,000 cash down payment - nice!)

The interest rate is 10% and the borrower is a goold ol' guy.

So, what's the problem?

Lost Springs, WY is "out in the sticks."

Actually, it is way past the sticks.

Lost Springs, WY has a population of 1.

It's nowhere.

1 person lives in this city. He is either very happy, or very lonely.
















If our borrower happened to default, we just don't have a lot of potential buyers of the 70 acres...

PS I didn't tell you that it took the seller 4.5 years to sell the property.

I'm selling my real estate note. The payor had a huge down payment, does this matter?

Yes.

It matters a ton!!!

You sold your real estate. Your borrower put down a huge down payment.

Congrats.

Your note will be much more valuable to a note seller because of the large down payment your borrower paid you when you sold him the real estate.

The cash down payment from the borrower is his "blood" in the deal.

The more blood he has in the deal, the more motivated he will be to keep the property. I like motivated payors on the real estate notes I buy.

A person who put a large down payment into the property, will incur a large
degree of uncomfort if they are thinking about not making their note payment.

Motivated payors keep their note payments current and up to date.

Payors who bought the real estate with nothing down, have zero "blood" in the deal.

Nothing down note payors are no different than renters. Actually, a renter has more "blood" in the deal than a zero down property buyer. A renter has to come into the deal with 1st month, last month, and security deposit.

A zero down buyer comes in with zippity doo dah.

A nothing down buyer will sometimes choose to pay his blockbuster or netflix bill before paying his real estate note.

This is not the case with a payor who put down a large down payment.

Bottom line: Get as big a down payment as possible if you are selling your property with seller financing.

Mortgage Note Buyers, I want to sell my note. Why does it matter what I sold the property for?

Question:
Which note would you rather buy and own -
A) A $50,000 note secured by a house that sold 3 years ago for $125,000.
B) A $50,000 note secured by a house that sold 3 years ago for 51,000.

Answer:
Equity. Equity. Equity.

Why does a real estate note buyer want to know what the property sold for?

It speaks to the equity or potential "equity cushion" that the payor has in the deal.

The more equity that the payor has in the deal, the less likely the payor will want to
default on the mortgage note.

For a note buyer, knowing the actual selling price paid for the real estate is an indication of the property value at the time of the real estate transaction. Certainly, the property may have fluctuated in value since the sale. But, it is a benchmark as to value at the time of the sale.

Real estate notes that have protective equity (the difference between the note balance and the selling price or current value of the property) are MUCH more valuable than notes that have little to no protective equity.

Again, selling price of the property is just 1 of 13 factors or variables that go into the pricing or determining the cash out value for your real estate note.

I am trying to sell my real estate contract. What can I do to sell it for the most money?

I get this question a lot.

Typical scenario:

For many different reasons someone sold a piece of real estate and decided
to "carry back" the financing for the buyer of the property
(could be a house, bare land, commercial building, whatever)

Initially, it's kinda fun to be receiving monthly payments from your buyer (also known as the borrower or payor).

But, at some point in this scenario, the note holder thinks, "these monthly payments are nice, but I can't really do what I want to do with these payments that trickle in every month. I need a bigger pot of dough."

Many real estate note holders eventually get to the point where they want to sell their real estate note.

Enter red phone funding the West's largest buyer of seller carried real estate notes.

People always assume or think they can "do something" to make their real estate note more valuable to a note buyer.

This unfortunately, is not the case.

Once your note is created between the property seller and the property buyer, their is very little that can be done to make the note "more valuable" to a potential note buyer.

The value of your note is going to be "set in stone" based on the terms and conditions that where negotiated between the note holder and the note payor way back to the time when the property was sold (at that time, the note was actually being formed and negotiated into existence between the property seller and the property buyer).

All this to say, be careful when you are selling your real estate property. The terms and facts and figures negotiated at the time of the sale of the real estate, will affect forever the marketability and desirability of the real estate note that you now carry.

I sold the property 3 months ago. Will you buy this note?

Absolutely.
Sure.
Probably.
Well maybe.
Depends.

The fact that you sold the property just 3 months ago would not prevent me from buying the note.

As a matter of fact, I am happy to buy a note after only 1 payment (as long as everything else makes sense).

WARNING: I DO NOT BUY NOTES VIA A SIMULTANEOUS CLOSING.

What we are talking about in this short blog post is the issue of note "seasoning."

Note seasoning or the period of time the note holder has been receiving payments is a buzz word in the note buying industry.

Many people have heard that you need 6 months seasoning of the note or 12 months seasoning of the note before any note buyer would even consider buying the note.

This is not the case for me.

Seasoning of the note is not that important for me - 1 payment is the minimum seasoning I need. But, note seasoning is just one of 13 factors that go into the desirability and pricing of the note.

Note seasoning for me is NOT a big factor. Down payment from the payor is a MUCH, MUCH, MUCH more important factor than the seasoning of the note.

Note seasoning is important in that it shows the history of the payor making payments on the note.

Let's analyze seasoning a little bit...

Most people assume the longer the seasoning of the note, then the note must be a more desirable note.

Not true.

What's better?
1) A note that has 14 months of seasoning on it. Only 3 payments were paid on
time. 2 payments were missed entirely.
OR,
2) A note that only has 6 payments of history, but all were made on time.

Simply based on the seasoning alone, which one is more attractive?

Bottom line: Note seasoning plays just a small role in the pricing of your real estate note. For me, only 1 payment is required to pass the seasoning issue.

There are other note factors far more important than the length of time you have been receving payments on your note.

I want to sell my mortgage note. Does the property type matter?

Yes.

The type of property you sold to create your real estate note will have a big impact on the "cash value" of your note.

Real estate comes in 64 different flavors:
Single Family House
Commercial Retail Building
8 Unit apartment complex
40 acres raw land
Condo unit in a 355 unit building
1/4 acre buildable lot
Gas station
Movie Theatre
Pizza restaurant
Strip mall
1972 single wide mobile home on 4 acres
Mixed use - flower shop on bottom and 2 unit apartment above
etc.

Not every property type has the same "attractiveness" to a note buyer.

Always remember that a note buyer will always be looking at your note and considering the "worst case" scenario... Which would be a default by the note payor.

Which means the property would now have to go through the foreclosure process and eventually be resold.

Some properties are much more "sellable" than other properties.

Question: Which property would sell quicker and faster?
Propert A) A 40 acre piece of raw land located in the mountains of Wyoming.
Access to the property is by rocky goat trail only.

Property B) A nice 8 year old house in a cute little subdivision just 20
minutes from Seattle.

If you picked property "A" as more sellable, please contact me as soon as possible. I have some land I need to show you.

Different kinds of property will appeal to different potential buyers. A single family home simply has the most potential buyers - therefore is a "more desirable" property type for a potential note buyer.

Are you receiving payments on property you sold?

If you have a question on the desirability of the property type you sold to create your real estate note - feel free to drop me a line...

Note Pricing. I am still trying to figure out how you price or value my note?

Real estate notes are valued or priced based on 13 factors.

These factors are known as the "Bakers Dozen" of note valuation.

Some notes are structured to be really strong in 4-5 of the factors, but may be very
weak in the other 8-9 variables that determine real estate note value.

It is the "whole" note structure that is taken into consideration when pricing each real estate note.

Let's reveal the 13 factors that will determine the value of your note:

1. What type of property did you sell?
2. When did you sell it?
3. What was the selling price of the real estate?
4. What was the down payment you received?
5. What city, state is the property located in?
6. How long did you own the property prior to selling it?
7. What is the current balance on the note you are selling?
8. What is the interest rate?
9. What is the payment amount on your note?
10. Is there a maturity date or balloon payment date on the note?
11. Describe the payment history.
12. Are the taxes and insurance on the property current?
13. Is the note payor’s credit good, bad or ugly?

The "stronger" your note is on these 13 factors, the more money your note will bring should you want to sell it for cash.

Real estate Notes: Full versus a partial note sale...

Receiving payments on a real estate note?

Thinking about selling your note to a note buyer?

Most note sellers would rather (if they could) sell the entire note.

Not all real estate notes can be sold. Let me say that differently - Not every
real estate note will have a buyer.

There are basically 2 ways you can sell your real estate note.
(1) You can sell the full note - which mean the entire note is sold off.
This means the note seller walks away with cash from the note buyer and
the note buyer starts receiving the payments from the note payor. The note
seller is cashed out of the note, and the note seller is now out of
the deal completely.

(2) You can sell a partial payment stream of the note - which means that you
are only selling a portion of the real estate note, not the whole note.
For example, you might only sell off the next 4 years of monthly payments.

The note seller would receive cash up front, the note buyer would receive
the next 4 years of monthly payments from the note payor, and then the note
would revert back to the note seller and he would start receiving the
monthly payments again from the note payor.

Which option is better?

It just depends on the wants, needs, and figures involved in a full buy or a partial buy of the note.

Another way to describe the partial vs the full note scenario:

Let's assume you have a pizza (with 8 slices to it) and want to sell the entire pizza. If I want to buy the entire pizza from you, I will pay you for the whole pizza.

But, Let's say I only want to buy 3 slices of pizza.

Since I am only buying 3 slices of the pizza, I am only going to pay you for the 3 slices I get to eat. You get to keep the other 5 slices for your enjoyment.

Real estate notes and Pizza. Mmmm... Mmmm... Good.

I have a real estate note which has a very low interest rate of 4%. Is there a note buyer who will buy this note?

Yes.

I am happy to purchase a low interest rate note.

The interest rate on the note you are receiving payments on does NOT affect the
ability for a note buyer to buy the note.

A note with ZERO interest rate is easily purchased by a note buyer.

Keep in mind, that the lower the interest rate, then the bigger the discount
will be to sell your note.
example: A note with a 11% interest rate will sell at a much smaller discount than
a note with a 4% interest rate.

Also keep in mind, that the interest rate on the note CANNOT be changed unilaterally by the note holder.

A lot of people think that if they sell their note, the new note holder will raise the interest rate?!?!

The terms of the Promissory Note cannot be willy-nilly changed at the whim of the note holder. (Your bank can't call you up in the middle of the night and say, "Since I am losing money, I am raising your note interest rate to 13.5%.")

So, there are many factors that affect the value of a note - Interest rate is just one factor involved in the value of a note.

A low interest rate will mean the note is less valuable than a similar note with a higher interest rate.

But, a note with a low or even a zero interest rate certainly can be sold.

What's the deal about buying real estate notes?

There is no deal.

I simply like buying real estate notes.

It's what I do.

Some people are comfortable buying stocks or bonds.

Some people think that investing in gold is the way to go.

I like real estate notes.

That's it. No big deal.

A lot of people say, "I would rather own the real estate and not the note."

I would rather not be a landlord.

I am not interested in getting a call from a tenant at 2:35 am with a "my toilet is clogged" message.

I like receiving my monthly interest payments from the note payors.

To each his own...


Got a real estate note? Thinking of selling it or want a price on what I would pay for it?

Give me a call or visit the note buying website.