Note Buyers' Criteria Question

[Brenda Allen]

Hi All,

I have been doing a bit of reading about the strategy of buying houses at a discount and then selling them with seller financing and then selling the note to cash out.  There is a piece of the puzzle missing for me though. It appears that note buyers are going to want 6-12 months of seasoning or they are going to want to buy the note at a "significant discount".  It seems to me that discount will pretty much wipe out your profit on the deal unless you were able to buy it super cheap - in which case you could use a different exit strategy and not have to mess around with creating a note and seller financing.  Am I missing something? Is there a way to make these deals work that I am not seeing? Or is it that you have to wait for 6-12 months of seasoning before you can cash out and get your profit?

Thanks,

Brenda

[Patrick Desjardins]

I might be wrong but I believe the investors who do this are looking for cash flow, and so their goal isn't necessarily to sell the note in 6 months. 

It is an alternative to being a landlord - you're cash flowing but you resold it at fmv or higher, you received a down payment and you're dealing with a owner instead of a renter (typically different mentality).

Your issue seems recapitalizing so you can do more deals. Only a sucker would buy a seller financed note like that with little seasoning without a large discount so I'd count that out. 

If this was my business model I would try to get one or two under my belt as proof of concept and then look for JV partners to fund the deals and you get a cut of the profit.