What is it and why should you consider one if you are selling your note?
Real Estate Investors often use seller financing to sell to a buyer that may not qualify for traditional lender financing.
Most would agree that the seller, given a choice, would have chosen to receive a lump sum of cash for the sale but because of market conditions and stricter lending practices, agreed to seller finance and instead received a down payment and the cash flow that comes from the monthly payments.
Because the funds are received monthly, and not in a lump sum, the investor does not have the option to use the lump sum to take advantage of other investment opportunities or to pay-off other high interest obligations.
Rather than lose out on these opportunities, many investors may opt to sell the note. However, most investors don’t understand that in most cases, they will take a steep discount because of the risks the note buyer will assume in holding the note long term. In most cases, the discount is not very appealing to the note seller. For example, a first lien real estate note with a balance of $80,000 may only fetch a cash offer of $40,000 to $50,000.
So, what options are there?
Partial Note Purchase
In a partial note purchase, the seller agrees to sell only a portion of the remaining payments as opposed to selling all the payments.
For example, if there is a total of 100 payments remaining on the note, the seller may opt to sell only the next 50 payments for a lump sum. Once the buyer has received the 50 payments from the borrower, the note would be reassigned to the seller and the seller would collect the remaining 50 payments.
In this scenario, the seller will receive a lump sum up front for the 50 payments for a much lower discount than if he were to sell the whole note.
Typically, a note buyer can offer a higher price for a partial purchase because there is less risk due to a shorter term. A seller can receive a lump sum of money now which can be invested or used for other immediate needs and still receive the remaining payments at the end of the their contract with the buyer of partial payments.
This creates a win-win situation for both the seller and buyer. If you would like more information on the process you may contact us at 1-877-399-1211 or email us at info@notebuyingusa.com with your questions.
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If you currently own a real estate note and are in need of immediate cash, we would like an opportunity to bid on and possible BUY YOUR NOTE! With over 20 years experience in the private note industry, our experienced staff is available to provide you with a quick quote and help make it easy for you to get the most for your note. Visit us today at www.notebuyingusa.com or contact us at 1-877-399-1211. If you are considering offering owner financing when you sell your property, please click here to receive your free copy of “10 Critical Steps to Creating a Sellable Note”.
