All Forum Posts by: Tracy Z. Rewey

A couple of graphs to go with the stats.

We buy seller financed notes so each year we track the stats. We saw a 15.9% increase in the dollar volume ($23.5 billion to $27.3 billion) and a 7% increase by count in 2021.  The increase in the dollar volume would be expected in general due to the increase in real estate prices.  The increase in the number of transactions seller financed was a pleasant surprise since it is such a hot real estate market with many cash sales or sellers not needing to offer concessions like owner financing.

We usually see increases in seller financing inventory when conventional lending gets tight or a real estate market softens.  Curious on your thoughts for the uptick in inventory?

Hello Kyle,  It sounds like this note is secured by a mobile on a rented lot without any land/real estate involved. The chattel/personal property notes are also transferable but tend to be a local private investor.  The institutional note investors like to buy the mobile with land notes (rather than mobile only notes).  I've bought some mobile only notes as a private investor.  I would be curious on the Sales Price, Down Payment, location, number of payments made to date, and the monthly P&I payment.  I'd also like to know lot rent amount/status and any background information on the buyer/payor (credit, work history, income, etc.)

There are also some of the note listing sites that will take mobile home notes which can open the doors to a pool of private investors.  Your local investor clubs can also be a good option as mentioned by @Rachel H.

@Burt L. An unusual situation.  We have bought quite a few notes from heirs over the years.  The main challenge usually surrounds probate/estate issues.  You want to be sure that the Assignment of the Mortgage or Deed of Trust will be insurable by a title company.  They will usually want to see evidence of who can sign for the estate (Administrator or Executor/Executrix) of the estate.  That process can vary by state.  The next challenge will be locating the original note so it can be properly endorsed by that same party to follow the Assignment chain.  It is also possible the estate will have costs that have to get paid out of the sale of any assets (like the note). You may need to assist this potential seller with finding a good attorney to handle the estate/probate.

In the meantime, you could get an Option Agreement for the Note (Mortgage/DT) signed by the party you think/hope is the sole heir. The suggestion by @Bob E. to pay an option type fee for first right of refusal could also entice the potential seller.  You might need to look at that as "gambling money" rather than "grocery money" as it could be tough to enforce before probate is complete (or even after...).  I've had deals where we have recorded an Option Agreement so it showed on title we had a potential interest while the title issues were worked out.  You just have to be sure to have an attorney review to be sure that is appropriate for your state and situation.

Quote from @Robert Oshea:

@Tracy Z. Rewey

Thank you for this information. I would have never thought of combining Wholesaling and creating partial notes.

You are welcome Robert. The challenge with a small investment and a long term note is your partial will be pretty far out into the future.  You could get the benefit of an early payoff but that isn't something you can count on or control. Another idea would be to roll your note referral/wholesale fee into the deal as a "reverse partial".  That is where the investor would pass-through the most immediate payments to you (say the next 6 or 12 months depending on the cash flow).  That would allow you to create more velocity by doing that over again sooner.  This type of arrangement is more of a private investor transaction (versus institutional investor funds).  The institutional investors will do partials also but the won't usually "passs-through" so it would be a standard partial vs a reverse partial.  The key here is finding a marketing for the notes.  Once you have a deal the investors will usually work with you to get creative!

Hello Robert, One way to get started is to market for notes and then refer to an investor to earn a referral fee at closing.  It is similar to wholesaling real estate.  As you create deal flow, you can find opportunities to work yourself into a deal.  For example you can sell an investor the first 25 years on a 30 year note keeping the last 5 years for yourself (using the investor's funds to purchase the full from the note holder).  We call that buying full and selling short using the partial purchase. 

Welcome to the world of Note Investing.  These are my top 7 reasons for investing in notes:

• Generate interest income

• Purchase at a discount for increased yield

• Backed by real estate as security

• Less hands-on than owning property

• Licensed third party servicers can manage payments and collections

• Ability to re-work the note, take a deed in lieu, or take the property back through foreclosure in the event of non-payment

• Profits are tax-deferred (or even tax-free with a Roth IRA).

My husband is fond of saying...

"I don't like math but I like money!" 

I am the odd duck that likes math and partials are all about math using the Time Value of Money (TVM) formula.  You establish the cash flow, decide your desired return, and calculate the Net Present Value. 

Once you are satisfied with the math then you have to document it.  The purchase agreement will outline what happens if the note pays off early, what happens if the note doesn't pay, and who controls the right to enforce (and the asset serving as collateral).  Not all purchase agreements are created equal and some favor the seller while others favor the buyer of the partial. 

I also prefer to buy the most immediate payments but I have also sold partials where I retained the back-end or future payments.  I suggest getting comfortable with TVM, using a good third party servicer, working with reputable buyers/sellers, and have a good attorney review the documentation.

Happy to share my general checklist for note due diligence if you want to message me.

Quote from @Chris Seveney:

@Mitch Franklin

If you can work the numbers sell property to get your cash out of the deal then carry a second for cash flow.

I second Chris's suggestion.  Another alternative over selling a first and keeping a second is to structure a first and sell a portion of the payment stream (keeping payments on the back-end).  They both have advantages with the main one being you keep yourself in the deal and get the benefits of residual income via interest and payments.

I also agree with the comment that you may need to increase the term to 20-30 years to keep the payment down depending on affordability.