How to Set Up Real Estate Notes That Retain Value over Time

There are a variety of situations that lead to owner financing, and if you choose to use this option when selling your property, there are some things that you should keep in mind when creating real estate notes. As the seller, you might intend to keep the note for now, but circumstances down the road may cause you to choose to sell the note; or, perhaps you know up front that you plan on trying to sell the note to another investor as soon as you get the chance. Either way, there are some things that you can do when you are creating the note that will help you maximize the amount you would receive if you later choose to sell it.

Obtain a good down payment. You should aim for a down payment of 10% on a standard house, or 20-30% on commercial property. This isn’t always possible, but get as close as you can without putting your buyer into a financial situation that could put them at risk of not being able to make payments on the loan over time.

Charge a decent interest rate. The best thing to do is to charge a rate that is at least as high as comparable bank rates – your buyer will still come out ahead by avoiding the high closing fees that banks would charge.

Keep the term of the note short. The shorter the term of the note, the more it is worth if you try to sell it later, so keep the term as short as possible.

Sell to a buyer with decent credit. Less than perfect credit is often a reason that a buyer is interested in owner financing, but the lower your buyer’s credit is, the riskier it is to lend the money to them.

These things will all help your real estate notes retain a higher value over time, and will make them a better investment for you or for future investors.

Cherif Medawar

www.cherifmedawar.com