People sell real
estate notes to raise cash quickly. A real estate note is just the loan
document created when you financed the sale of your house or investment
property. It could be a mortgage note, or a land-contract or
contract-for-sale. The point is that the buyer is making payments to
you, and you want to cash in.
You can sell the entire contract, or
just a certain number of payments if you want. The buyer of your
property will have the same terms and payments. He'll just be making
those payments to somebody else.
Selling real estate notes can be an
intimidating process. You know you won't get the full face value for
your note, but will there be other fees you have to pay too? How do you
know if the buyer is reputable? What is a normal discount on a note?
Here are some guidelines to follow:
1. No upfront fees. If they ask, go
someplace else. You should be able to find many note buyers who will
check your buyers credit and give you a quote without charging you.
2. No other fees, with a couple
exceptions. The buyer has already figured his expenses before making
the offer, so there are only a couple fees you should have to possibly
pay. First, you may have to pay for the title policy, if there are
problems with the title that prevent purchase. Second, if the property
appraises at less than the sales price, you may have to pay for the
appraisal. You should only pay exactly what these cost the note buyer
though.
3. Be sure that the note buyer gives
you a written purchase agreement with the purchase price and
contingencies. Ask questions about anything that isn't clear.
4. The note buyer should check the
credit of your property buyer upfront. Unscrupulous buyers can quote
one price initially, and then lower it later, using the excuse of the
property buyer's bad credit score. This is called "bait and switch,"
and it isn't ethical.
5. Contact several note buyers for
quotes. You'll need to provide information like the type of property,
sale price, payment amounts, current balance, etc. They should respond
within a day or two.
6. When you get a quote you like,
you'll have to send copies of the Mortgage or Deed of Trust, the Note,
the closing or Settlement Statement, and the Title Policy. If there is
no recent appraisal, they will usually arrange for that.
7. Processing time varies, so ask.
Usually, once you agree to the offer and send the documents (if done by
mail), you can expect to receive a certified check or electronic
transfer to your account within two to three weeks.
Get Top Dollar When You Sell Real
Estate Notes
Notes with a balloon payment get a
higher price. "Seasoned" notes sell for more too. Those are notes that
have had payments made on them for a while. Some note buyers will buy
new or "unseasoned" notes, but if you can wait until six payments have
been made, you're likely to get a much better price.
Higher interest rates and shorter loan
periods will get you more money too. This is something to consider
before you sell the house, if you think you might sell the note in the
future.
You can sell second mortgage notes,
and other second-place real estate notes as well. Note buyers will look
at these differently though. The first and second place notes can't add
up to much more than 70% of the value of the property, or you'll be
looking at a steep discount
Discounts, by the way, will almost
always seem steep. It is common for note buyers to pay 20% to 30% less
than the current balance on the note. I'll let them explain why.
Suffice it to say, they need to make money on the deal, and you should
be sure you have a good use for that cash before you sell those real
estate notes.
