As a Premium real estate note buyer I am often asked by note sellers if their note is saleable. I
can’t stress enough to sellers how important it is to get the right information about your
note and payment history to the potential note buyer. The potential buyer can only determine
whether the note is what they want to buy if it meets the criteria they are looking for in
a note purchase.
There are, however, a few basics that all or most note buyers look for. First,the note must
be secured by legal means. Understand, the note iteslf is not legally binding to the payor
unless it has been filed at the county court house.
A mortgage is then created that legally connects the real estate note to the property. This
means that if the Payor (the person sending you payments on the note) ceases payments the
note is still secured by the real estate. What that means is you could receive payments for
say, three years, but then the payments stop coming. You would still own the property and
have no obligation to return payments made to you against the note.
Without this mortgage to secure the real estate note to the property the note would be worthless.
Most note buyers are looking for secure places to invest their money for a long term return
on their investment. They need to know everything they can about the note to decide if it
will be a secure investment for them to make. Most note buyers want at least an 18% ROI when
they purchase a note.
The mathematics required to determine the ROI on a note are complex and include consideration
of the depreciation of money of a period of time. Quite frankly, a note loses value over the
course of time, and this is a factor the buyer must calculate into his equasion.
The longer a note lasts the more it’s value drops because of this deprecation of money, called
the “Time Value of Money”. To get the maximum amount of cash for your real estate note you
want to sell it as soon as possible after it is created.
look at the equity in your property. A higher equity can make your note more valuable. Other
factors will effect the value also. It is really hard to know what a buyer might BUY on any
given day, much less what they might PAY for it, even with fairly good looking facts and
circumstances on the history of your note.
Many note deals may take a lot of “engineering” to finally come up with workable deals –
deals that satisfy your needs as the seller… and meet the needs of the Buyer for security
and yield return.
The note buying market offers a broad playing field. All kinds of cash flows might sell…
and they might not! The only way to tell for sure is to list your note and all the facts,
telling the buyer EXACTLY what it is you have for sale (leaving no important details out)
then see what they are willing to offer you for your note.