Structuring "Bubbles" For Seller Financed Notes

[Bryan Hancock]

I was wondering if any on here have successfully used bubbles for structuring seller financed notes. The concept is to get a small balloon payment for less than the full amount of what is owed on the note to meet the seller's particular needs years into the note instead of them selling the note at a big discount to monetize. I have structured some deals where we did things like this with several notes, but not as part of a single note.

Any words of wisdom out there? Ideas? Opinions? I am assuming multiple notes may be better for this purpose, but with several bubbles you would have to have some of them in 3rd or higher position, which should make them far less marketable and possibly unattractive to a seller.

[Loc R.]

Ah...now you're talking about "staging" a note purchase. I've done that too. It's a nice way for the seller to get full face value of the note.

For example, you have a 120 month (10 year) note on $50,000 at 8% that pays $606.64 a month.

To sell the whole thing at a 12% yield (to the investor) nets you as the seller $42,282.98 cash.

But, you could "stage" the purchase as such:

$50,000 for the entire note, paid in such a manner:

$10,000 for the 1st 24 payments.
$10,000 for the 2nd 24 payments.
So on, and so forth.

And you're right about junior liens...they are practically worthless in this current secondary market.