All Forum Posts by: Dan Deppen

My suggestion is to build a spreadsheet and include the net cash flow to you for every month of the deal, then use the IRR function to figure out your return.

Everyone else has laid out the factors that will influence the price of the loan. My advice is to gather all of that information and present it to the potential buyers up front. Don't make them play 20 questions or hunt through the docs to figure it out for themselves. The easier you make it for your counterparty, the more time and effort they'll put in to making an offer on your note.

EDIT: Just realized I read that wrong and thought the poster was the seller. 5% rate and 5% down is a sweet deal, take that if you can get it!

First, if you resell the note, most investors will want a 10%+ return. So if you create it with a 5% rate you would need to take a large haircut to sell it. Most seller finance notes have interest rates in the 9-10%+ range.

Also, 5% down is very little skin in the game for the borrower. I recommend at least 10%, and obviously, something closer to 20% is a lot better.

Is the borrower going to live in the home, or is this an investment property? If it will be owner-occupied, there are a number of compliance issues to ensure you address (Dodd-Frank, etc). 

An attorney or title company can draft the legal docs. If you DM me, I can send suggestions.

Yes, you'll want to record the docs after you execute the transaction.

Also, don't self-service the loan. You'll want to hire a licensed loan servicer to take care of that for you (Provident, Madison, FCI, etc). You can write into the agreement that the borrower pays the servicing fee.

If you have ~$130K equity in each and $260K total, can you just sell them and move the cash into something else?

I've never done one of these, but I would reach out to someone like Jeff Watson for assistance getting solid paperwork in place.

One that I've seen a few times is people thinking they can sell a note based on the sum of all the remaining payments instead of the principal balance. 

 Whether you are getting a continuous stream of income depends on the deal. I believe Chris mentioned this was a non-performer when he went into it. Buying cash flowing notes is certainly a lot easier :)

This guy sounds like a character. My bet on the next twist is the death turning out not to be natural causes.

Check out https://iereic.org/, they are based in SoCal and do a note exchange on Wednesdays. They actually have lots of active investors, so you might find someone there. 

A common mistake is assuming that people always behave rationally and make decisions in their best interest. Another slightly different one is mirroring, where you assume that the other person will view the world the same way you do. Anyone who has actually been active in this space will know that borrower behavior can be predictable and irrational, and they might have a fundamentally different mode of operating their life than you do.