Looking to create a note to sell to investors

[Peter Grote]

I currently have a hard money loan that I did on a property at 12% interest and am in 1st position on the deed since I provided the full capital for purchasing the property with cash. The new owner thought he'd be able to quickly get a traditional mortgage but is finding that he's not qualifying due to being self employed as a contractor and so shows variable income. I'm interested in restructuring his note  so that he can begin making monthly payments to "season" it and then ultimately sell it to another investor as a performing note. 

I'm curious if a 6% interest rate on approx 250k (on a 30 yr am) would be something that I will be easily able to sell? and if so, could I do so after a few months, or does it typically need 6 months of seasoning? Also what would be a typical amount that I can hope to sell the note for, 85%, 90%, 95%, 100% of it's value? And are there other costs I should budget for in that sale?

Thank you!

[Andy Mirza]

Originally posted by @Peter Grote:

I currently have a hard money loan that I did on a property at 12% interest and am in 1st position on the deed since I provided the full capital for purchasing the property with cash. The new owner thought he'd be able to quickly get a traditional mortgage but is finding that he's not qualifying due to being self employed as a contractor and so shows variable income. I'm interested in restructuring his note  so that he can begin making monthly payments to "season" it and then ultimately sell it to another investor as a performing note. 

I'm curious if a 6% interest rate on approx 250k (on a 30 yr am) would be something that I will be easily able to sell? and if so, could I do so after a few months, or does it typically need 6 months of seasoning? Also what would be a typical amount that I can hope to sell the note for, 85%, 90%, 95%, 100% of it's value? And are there other costs I should budget for in that sale?

Thank you!

Most of the investors here that buy performing notes are looking for at least 9% yield. Plugging your numbers into a financial calculator lets me know that a note buyer who wants a 9% yield will be willing to pay $186,283.14 for your note or 75% of face value. There are guys out there that will pay more but you'll have to find them. They will also differ in how much seasoning they require but, generally, the longer the seasoning, the more you can get for your note. There are guys who will buy that with no seasoning.

How much effort did the borrower really take to get himself refinanced? There are lots of non-QM loan products out there but the borrower will have to pay higher interest. I'd really encourage him to find a way out himself. If he tried one or two lenders and then quit trying, he needs to try at least a dozen before he tells you he can't get financing.

That also begs the question: if he can't get regular financing, why would you give him a 6% interest rate? Be aware of the usury laws in your state but I'd consider a higher interest rate. That could be enough motivation for the borrower to get financed elsewhere and reward you for the risk you're taking. Also, the higher the interest rate you charge, the higher the yield will be to the note buyer you sell to, which will give you a higher exit point if you go that route.