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.
