All Forum Posts by: Tracy Z. Rewey

Welcome Mia to the world of note investing.  Dave's book is a great start.  I also like the book "Invest In Debt" by Jimmy Napier.  It is an oldie but goodie that helps visualize different ways to apply the same concepts.  You have lots of great suggestions here and I appreciate the kind words by others on your post.

Quote from @Edward Seward:

@Tracy Z. Rewey This is more in line with what I need to invest in a note or provide owner financing. If a note does not meet this criteria it must be discounted enough provide this level of return. If I'm writing the note I like to set it up as a 7 or 10 year ARM with 30 year term. This gives the borrower maximum incentive to refinance the loan before the end of the ARM term and interest goes up.

That strategy will become even more valuable as interest rates start going up!  We haven't worked with ARMs as much since Dodd Frank yet they can be done with the right disclosures and qualifying.  Might be time to revisit! 

Quote from @Robert Oshea:

@Tracy Z. Rewey As always thank you Tracy for the constructive advice. Unlike some people on here who only wish to insult others less fortunate than themselves.

You are welcome.  I come from humble financial beginnings.  I know what it is like to try to dig out of a hole.  Fortunately in my 20s I learned some great strategies from people willing to share that truly changed by future.  If you want to message me I'm happy to send you some free resources that are a great place to start.

Quote from @Marco Bario:

@Chris Seveney -

Numbers paint the bold lines of a picture, and time fills in the colors.

Really like that quote Marco!

@Chris Seveney Completely agree on getting a higher rate, a higher down payment, and a better quality buyer.  Here is what we suggest to people contacting us:

For lower risk and best pricing investors like to see the following for residential properties:

• Down Payment – 20% or more (10% Min.)
• Credit Rating – 680+
• Interest Rate – Fixed 9-10%
• Term – Fully Amortizing (20 to 30 years)
• Income – Ability to Repay (45%+/- Debt to Income Ratio)
• Reserves – Taxes & Insurance
• Servicing Through A Licensed Third Party

If a note doesn’t fit into this box it can usually still be bought and sold. The pricing will just be adjusted to compensate accordingly. Pricing on notes for resale can range from 95% to 50% (or less) of the balance due. That’s why it is so important to setup a note for success from the start.

I also prefer a shorter term but have found that it can make it harder for the buyer to meet the Ability to Repay because the payment goes up substantially.  You could sell a partial for a shorter term (say 15 years on a 30 year note) or write in a balloon, but if dealing with an owner occupied buyer we prefer to avoid the balloons now due to Dodd Frank. 

@Chris Seveney @Ned Carey  Agreed on the confusion caused by being the owner but not the current landlord.  Wondered if perhaps @Burt L. has since sold the property (maybe on a wrap)?  If you are the current owner and still owe on the seller financed note it might be a simpler option to offer a discounted payoff rather than buying the note as a discount.  I've used that strategy when I've bought property with seller financing along with writing in a first right of refusal should the seller ever want to sell the note down the road.  Additional ideas might come to light if we know the current ownership status and debt obligations of all parties.

@Chris Seveney @Marco Bario Great insights!  Thanks for sharing.

On the land notes, we believe that there were quite a few high dollar large tracks of lands purchased by residential developers that bumped up the volume in 2018, 2019, and 2020.  As the land is developed and homes are built, the majority are then sold with conventional financing.  The seller financing land numbers in 2021 were back to similar numbers as 2017.

Quote from @Andrew S.:

Not an expert on this, but these days, many, many properties go through bidding wars and end up selling far beyond appraisal.  So, either the buyer has to bring extra cash, or the seller has to take back a note.  Do these stats break out whether the notes are Firsts or Seconds?

Hello Andrew,  Great question.  All of these stats are 1st position notes over 30,000.  It does include Wraps (where the seller wrapped their bank loan) but not seconds where the buyer obtained a bank loan as the first primary form of financing.  I asked them to pull the seconds as I wondered if we were going to see a resurgence of the old 80/10/10 (80% bank loan, 10% down, and 10% second) with people paying over appraised value but they said the numbers were negligible.  Will definitely keep an eye on that as a trend and it can be a great tool (although those types of seconds aren't as marketable on the secondary market for resale purposes).

Quote from @Marco Bario:

Quote from @Chris Jeub:

Could it be education? I didn't realize seller financing was even an option a year ago. Bigger Pockets opened that world to me. My son closed a great deal with seller financing, and I now ask about it all the time when searching for properties.

It could be that! 

I notice the Bigger Pockets crowd refers to seller financing as "creative financing." It's really just the tip of the iceberg of creative dealmaking, but it's at the core. 

The difference in terms always interests me.  It can depend on your region or just the general terms used by that group of investors.  I like to use Google to see how many search results come back which gives me an idea of what terms are most widely used.  Here are the most common:

owner financing - 577 million results
creative financing - 253 million results
seller financing - 199 million
installment sale - 129 million
seller carry financing - 13.5 million

Quote from @Robert Oshea:

@Tracy Z. Rewey would it be possible to sell the partial created in the transaction to another individual?

Yes in theory although it can get a bit messy.  Most note investors that work with the partial purchase have a clause in their purchase agreement that they get the first right of refusal should the remainder interest party want to sell their interest.  That would need to be honored and all details revealed to any other individuals/investors. The primary investor usually has a fully recorded assignment and note endorsement being sure to avoid fractionalizing the note.