How to sell a note? Paper

Question

So I want to start creating my own notes. I have a plan to buy a sfr maybe fix a little and sell with seller financing. An example note would look like this:

90k note 20year term with 9.25%

Home value 110k

Seasoned for 12 months

Note will be professionally managed by 3rd party

Note created with proffesional RMLO

So what should I expect when selling this kind of note ?

Where would I start looking for note buyers ?

Or could I take this note to a bank as collateral for a loan to pay myself or private lender back ?

Chris Seveney · Answer

@Dustin Mathenia

1. Depends on the state

2. Most note buyers look for 12% yield. Having it amortizatized over 20 years will hurt you when selling. You would be looking at 20-30% discount on the note potentially.

Mike Hartzog · Answer

One strategy that can be used to get around the term issue is to create a fund, and sell your notes into it.  Investors are investing in the portfolio rather than individual notes. The investors don’t need to worry about personally dealing with defaults and foreclosures because the fund manager takes care of that for them.  Our fund has been running successfully for over 3 years now.  If one of our assets goes sideways, we buy it back at the same yield it was sold to the fund at and deal with it.  That approach to managing returns and protecting investors requires that we own some portion of the fund ourselves as an investor.

Randy Rodenhouse · Answer

Dustin,

I like your idea since this is something I do as well and it works. Even though many people commented on the term of the note being long I don’t see a big problem with it and I (The Note Authority LLC) would buy such a note.  Yes usual there will be some discount on the note when you sell it but still will get 75% to 90% of UPB depending on the pay history, house location, borrower, etc. You’re not gonna be able to take the note to a bank as collateral to get another loan.

Dan Deppen · Answer

There are a few. I've had good experiences with Paperstac.

Jim Hartmann · Answer

When we buy notes, we look at the paper to make sure it is written well and covers all the details of the note as well as the collateral.  We also want to see good pay history.  A servicer is a plus as well to help collect payments as well as tracking pay history.  The property is also reviewed for the type of property and the condition of the property.  A SFH with an owner/occupant will receive a higher offer than one with a tenant in it.  Commercial and other specialty properties have fewer buyers in the marketplace and thus will have lower offers as well.  Commercial is also a little more risky in that if you had to take it back, there may be a harder time leasing or selling again.  If all these factors look good, you would be more toward the 20% discount that @Chris Seveney mentions.  Any issues or items on any of the above would likely draw the offer downward.

When selling a note, there are groups like ours which purchase notes and there are also institutional buyers which would purchase them as well.  A search on the internet should reveal institutional buyers.  You can also find someone in your local REIA to see if they are interested in purchasing at the price that you desire.

Roman M. · Answer

Most of the note buyers want to see principal.back within 10 years. When you have a 20 yr mortgage it affects the value. Other things to consider is credit score of the borrower and loan to value. In your example above you could get close to face value of the mortgage but expect a hair cut due to 20 yr term.

If I had to guess then you should be able to get $85,000 for the note.

Forget about pledging the note or borrowing against it. It will be very difficult to find a bank to do it and a private investor will charge you probably north of 10% if they are comfortable with lending against a note.

Sean Mcintire · Answer

@Dustin Mathenia I sent you a PM.  We can help you.  We have a free note holders handbook that will help you create top $ notes. Thanks.  Sean McIntire

Dustin Mathenia · Answer

@Richard Osborne

I plan on selling the first few notes I creat. What do you look for when buying ?

Dustin Mathenia · Answer

@Sam Turgeon

Yea I get that but would still own paper when it comes to sfr. Eventually I will find a way to get forever cash. Maybe in storage units or a commercial building with triple net lease.

Dustin Mathenia · Answer

@Mike Hartzog

That is interesting!  I'm not sure exactly how that would work but I will look into it!

How to sell a note? Paper

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