Capitalizing on Selling Your Real Estate Note
Sometimes you may want to get immediate cash for a real estate note you’re holding. Instead of waiting for future payments, consider selling your note for an up-front, lump-sum payment. Perhaps you need funds for another investment, a business venture or an emergency. Regardless of the reason, selling your real estate note can provide money to meet your needs in a matter of weeks. This can reduce your level of risk, plus free up funds that you can spend however you wish. Let us look at how capitalizing on selling your real estate note can help you get funds.
How Real Estate Notes Work
A note-often called a mortgage-is a financial instrument by which the owner of real estate borrows money against the property. A homeowner can have several mortgages on one property-totaling more than the value of the property with some programs. But in most cases, the note is only a portion of the value of the property.
The first mortgage is usually held by a large lender, such as a bank or investment firm. Second liens are typically held by large companies but are also established by individuals who often agree to take on a second mortgage to help buyers qualify to purchase their property.
Real estate note buyers generally prefer to buy real-estate secured notes that are in the first lien position or wrap around the first lien position. Notes in a second lien position, naturally, will sell for less unless there is considerable equity in the deal. Note buyers, whether private individuals or large institutions, will generally discount the note to offset their risk and meet certain yield requirements. The amount of discount varies across notes, but the two biggest factors in determining the discount are the amount of equity in the property and the credit of the borrower.
Cashing in a Real Estate Note
Obtaining cash for a real estate note is a relatively straightforward and quick transaction. Here’s how the process of getting money for your real estate note goes;
- Fill out an initial form to provide information about the property and your note.
- Supply information about your borrower.
- Receive an estimated pay-off quote within 48 hrs.
- Complete the remaining paperwork required to proceed.
- Submit the signed and completed documents.
- Close within a matter of days and receive your money.
Making Real Estate Notes More Appealing to Investors
Selling real estate notes can also be used as an ongoing exit strategy for investors offering owner-financing. You can use installment-financing to close the deal with buyers, and then convert their future monthly payments into quick cash by selling the note. If you’re going to create a real estate note, there are some guidelines you can follow to make it more appealing to other investors
You also should try to sell to a buyer with a decent credit history. A buyer with a FICO (credit score) of at least 650 is preferable, although a slightly lower score may be acceptable. If you provide owner financing to someone with a FICO score below 600, you can expect to take a larger discount when you sell the note.
Also, make the term of the note as short as possible, keeping in mind that a 10-year or 15-year note is worth more than a 30-year note. And ensure that the interest rate being charged is at least as high as comparable bank rates.