If you’ve sold a rental property, whether it’s a single family home, a condo, or a mobile home, it’s likely that you’re holding a mortgage note. That was a smart move, considering that selling a property with owner financing to creates a mortgage note that can pay you for years to come.
Only problem with note financing is that sometimes you need the money up front, or something comes along and you’d like to cash in your mortgage.
Banks do it all the time. If you own a home and have ever gotten a letter in the mail saying your mortgage is now being held by a new company, then you’re mortgage note was sold so the original lender could cash out.
Selling with owner financing – where YOU are the bank – is often the best way to get an above-market sale price, plus receive regular payments. It’s a great source of cash flow income that is secured by the value of the property.
Alas, sometimes you just need a lump sum payment. Then it’s time to sell the note to cash out – or only a number of future payments so that you can receive a chunk now, and keep the payments coming at a later date.
You’ve looked around and found there are a number of options to sell your note or partial payments
As you may already know, you can choose from consultants, private buyers, and financial institutions which specialize in buying mortgage notes. Like us, they have the capital on hand and experience to be able to step up with an offer. You’ll want to make sure – whoever you choose – that you work with a buyer that can close the deal.
Consultants (also called brokers) can be a great option for selling your note since they have a network of buyers to reach out too. It’s easier for them to connect your mortgage note to the right buyer depending on the property.
That makes it easier for you, since you may not know where to find the best buyers. Consultants can give you choices, which is a good thing.
You can also work directly with an investment group like Vineyard Funding Capital Group to bridge the gap between a broker and a private investment firm. We keep our feet in both worlds.
Before You Sell Your Note…
Before you start gathering your paperwork and shopping around, make sure you understand what to expect.
Notes are Purchased At Less Than Face Value
Notes are almost never purchased at 100 cents on the dollar since the value the buyer is paying for is in the future.
Also, there are some up-front expenses for a sale, such as appraisal, title search, closing, and general due diligence. The buyer needs to cover their investment and earn a reasonable return.
Let’s say you sold your $100,000 house with seller financing over 30 years and a small down payment of $5,000. Your borrower owes you $95,000 over 360 payments, plus interest. It’s a great deal for you since you get regular payments and if the borrower flakes out, you get your house back. Easy.
But if you want to sell the note, that $95,000 isn’t going to materialize for 30 years. If you sell it, your note buyer will have to calculate the value in today’s dollars minus expenses.
The note buyer will take a look at the value of the property, the credit worthiness of the borrower, and the payment on the note to come up with purchase price. Different note buyers will come up with different bids, so it’s worth looking around for the best deal.
Provide Proof of Past Payments
You’ll want to gather the paperwork on your note in advance of selling it. You’ll need things like:
- Number of Payments so far, along with proof
- Recent valuation of the property
- Down payment proof
- Original signed copy of note
- Recorded documents such as trust deed (depending on your state)
The better the documentation, the higher the value of your note. If you have a servicing company taking care of collecting payments, you can get a lot of the paperwork from them.
The note investor will be looking for anything that might cause a problem getting their payments, and good records that support the value of the property will help you get the most for your note.
Want to get started? Get a quote on your note by filling out our easy online form.