One of the first questions a note seller asks is, “How much can I get for my note?”
At the end of the day, that is what it is all about, right? Or is it?
For some, selling a note is not just about price.
For many people selling a note is about getting out of the hassle of collecting payments, dealing with defaulted buyers, reporting taxes, or having their money tied up for the length of the note.
The good news is, whatever your reason for selling, you will be able to leave the ‘negative’ parts of owning a note behind — regardless of price.
But price is still important, so how can you get the most for your note? Here are a few tips that apply when you are ABOUT to create a note and if you ALREADY have a note.
Tips For Creating A Note
Consider getting a 20% down payment if possible – One of the key factors when selling a note is the amount of equity in the property. The buyer’s Loan-to-Value (LTV) helps determine the likelihood of the payments continuing without hassle. The more equity the buyer has, the less likely it will go into default.
Consider a note with a face rate of 8-9% (or higher depending on the property). When someone purchases your note, they are looking for a return on their money. That return is determined by the difference between what you charged for an interest rate and what they wish to receive as a yield on their investment. If you create a note at a very low-interest rate, say 4%, you are most likely looking at a greater discount in selling your note.
Outside service the payments – A proven payment history is always a big plus when an investor is deciding how much to pay for your note. For a small amount of money each month a ‘service’ will collect the payments and deposit them in your account. They also keep a record of when payments are made, current balance, and year-end tax reporting.
Check the buyer’s credit history – How well a buyer has made payments in the past is a good indicator of how well they will pay you. You don’t want to sell the property only to turn around and get it back through a lengthy (and costly) foreclosure process.
Tips For When You Already Have A Note
Copy of payment history – If you are not having a service collect the notes, make sure you are keeping a copy of the payments you are receiving. A ledger is always good, but copies of checks and deposit slips are even better.
Original paperwork – Make sure you have your original paperwork in a safe place. When you sold the property, the buyer signed a ‘Promissory Note.’ This is their promise to pay. It is a necessary document for proving ownership.
Additional information about the property – When selling a note, any additional information about the property is always helpful. Did they add on a room or improve the property in some way? Do you believe the value is more now? If so, based on what? Is it owner occupied or rented out?