People sell real estate notes to raise cash quickly. A real estate note is just the loan document created when you financed the sale of your house or investment property. It could be a mortgage note, or a land-contract or contract-for-sale. The point is that the buyer is making payments to you, and you want to cash in.
You can sell the entire contract, or just a certain number of payments if you want. The buyer of your property will have the same terms and payments. He’ll just be making those payments to somebody else.
Selling real estate notes can be an intimidating process. You know you won’t get the full face value for your note, but will there be other fees you have to pay too? How do you know if the buyer is reputable? What is a normal discount on a note? Here are some guidelines to follow:
1. No upfront fees. If they ask, go someplace else. You should be able to find many note buyers who will check your buyers credit and give you a quote without charging you.
2. No other fees, with a couple exceptions. The buyer has already figured his expenses before making the offer, so there are only a couple fees you should have to possibly pay. First, you may have to pay for the title policy, if there are problems with the title that prevent purchase. Second, if the property appraises at less than the sales price, you may have to pay for the appraisal. You should only pay exactly what these cost the note buyer though.
3. Be sure that the note buyer gives you a written purchase agreement with the purchase price and contingencies. Ask questions about anything that isn’t clear.
4. The note buyer should check the credit of your property buyer upfront. Unscrupulous buyers can quote one price initially, and then lower it later, using the excuse of the property buyer’s bad credit score. This is called “bait and switch,” and it isn’t ethical.
5. Contact several note buyers for quotes. You’ll need to provide information like the type of property, sale price, payment amounts, current balance, etc. They should respond within a day or two.
6. When you get a quote you like, you’ll have to send copies of the Mortgage or Deed of Trust, the Note, the closing or Settlement Statement, and the Title Policy. If there is no recent appraisal, they will usually arrange for that.
7. Processing time varies, so ask. Usually, once you agree to the offer and send the documents (if done by mail), you can expect to receive a certified check or electronic transfer to your account within two to three weeks.
Get Top Dollar When You Sell Real Estate Notes
Notes with a balloon payment get a higher price. “Seasoned” notes sell for more too. Those are notes that have had payments made on them for a while. Some note buyers will buy new or “unseasoned” notes, but if you can wait until six payments have been made, you’re likely to get a much better price.
Higher interest rates and shorter loan periods will get you more money too. This is something to consider before you sell the house, if you think you might sell the note in the future.
You can sell second mortgage notes, and other second-place real estate notes as well. Note buyers will look at these differently though. The first and second place notes can’t add up to much more than 70% of the value of the property, or you’ll be looking at a steep discount
Discounts, by the way, will almost always seem steep. It is common for note buyers to pay 20% to 30% less than the current balance on the note. I’ll let them explain why. Suffice it to say, they need to make money on the deal, and you should be sure you have a good use for that cash before you sell those real estate notes.