Purchase Money Mortgage Note Investing

[Phil Moore]

Storytime: I've recently taken a deep dive into the world of creative finance specifically in regards to owner financing and subject-to. I've been generating a number of offers for sellers to finance their properties to my company on terms that work for both parties involved. Often times these terms include 7 or 10 year balloon payments. While the terms of the deal make for a solid investment for the seller, I find often times that folks simply aren't willing to wait until the balloon is due to reap the rewards of their investments. This is a problem that I know has a solution. I put on my thinking cap to figure out the solution, and I want to know if the "solution" that I have devised is possible, feasible, and legal.

My questions: Is it possible to sell a promissory note from a purchase money mortgage? If so, how exactly is this done? What kind of terms would make it enticing for a seller turned lender to do such a deal? 

If it is possible to conduct transactions with this kind of note, is it also possible to purchase a portion of the note in conjunction with a group of investors if one is also the borrower on the underlying note or has a relationship to the borrower? In other words:  can you have the cake, and eat a piece of it too?

I would appreciate any insight to this. I don't know if I want to have to go back to drawing board...

[Don Konipol]

Quote from @Phil Moore:

Storytime: I've recently taken a deep dive into the world of creative finance specifically in regards to owner financing and subject-to. I've been generating a number of offers for sellers to finance their properties to my company on terms that work for both parties involved. Often times these terms include 7 or 10 year balloon payments. While the terms of the deal make for a solid investment for the seller, I find often times that folks simply aren't willing to wait until the balloon is due to reap the rewards of their investments. This is a problem that I know has a solution. I put on my thinking cap to figure out the solution, and I want to know if the "solution" that I have devised is possible, feasible, and legal.

My questions: Is it possible to sell a promissory note from a purchase money mortgage? If so, how exactly is this done? What kind of terms would make it enticing for a seller turned lender to do such a deal? 

If it is possible to conduct transactions with this kind of note, is it also possible to purchase a portion of the note in conjunction with a group of investors if one is also the borrower on the underlying note or has a relationship to the borrower? In other words:  can you have the cake, and eat a piece of it too?

I would appreciate any insight to this. I don't know if I want to have to go back to drawing board...

Note Investors are looking for 12% + yields to maturity on unseasoned or relatively new owner carry notes.  The yield necessary can go higher depending on the LTV, down payment, borrower credit, note terms, and asset class/location.  Some notes I wouldn’t touch unless I received an 18% yield.  Herein lies the rub.  If a property is sold with owner financing at an above market interest rate but still reasonable of say 7%, then on the secondary market the note will sell for a lot less than principal balance.