How To Convert Your Real Estate Notes Into Quick Cash
BATTLECALL GUEST EXPERT: David Springer,
Sovereign Funding Group
If you're a real estate investor needing quick cash, selling your notes could
offer a fast, easy solution.
It can happen to anyone. You find yourself in a situation where you need a
chunk of cash--instantly. Maybe you have to handle an emergency or simply want to
free up funds to invest elsewhere. Whatever the case, selling mortgage notes can
put money at your disposal within a matter of weeks.
Selling mortgage notes allows you to convert small monthly payments into an
almost immediate lump-sum of cash. You won't have to wait to recoup the bulk of
your investment. Plus, you can avoid the risk associated with owner financing.
And you can spend the money however you want; it's yours and there are no
strings attached.
Mortgage note buyers purchase a wide variety of privately-held mortgage
notes, including promissory notes, land sale contracts, deeds of trust, contract
for deeds and other debt instruments secured by virtually every type of
property. They can work with you if you're receiving payments on residential,
commercial and other types of property.
Some examples of the type of notes you can sell, include:
* Residential Notes -- For houses, townhouses, condominiums, apartment
buildings, and mobile homes
* Commercial Notes -- For office, retail and industrial
* Vacant Land Notes -- For developed land, undeveloped land and land not
designated as a specific-use property (such as farm land or waste storage)
How It Works
Selling mortgage notes simply allows you to receive cash now for your future
payments. You may be eligible to take advantage if you've sold your home or an
investment property via owner carry-back financing or seller financing and are
now receiving payments on that note. You could be cashed out in two to three
weeks, receiving the funds by check or electronically.
Most note buyers prefer to buy real estate secured notes that are in the
first lien position or wrap around the first lien position. If you have a second
lien--where there's a bank or another investor with a more senior lien against
the property--you may be able to sell the note. However, the price that you get
won't be nearly as high--unless the buyer has at least 30 percent of his own
money as a down payment or in built-up equity.
Here's how the process of selling notes works: You need to contact several
mortgage note buyers and request a quote. They will probably ask you to submit
copies of the deed of trust or mortgage, the note, title policy, and
closing/settlement statement. If there is no recent appraisal or title policy
available, they may be ordered at the note buyer's expense.
Each of your notes will be evaluated on a case-by case-basis, with a number
of aspects considered. These factors include the purchaser's equity, payment
history, seasoning of the note, credit rating of the buyer, term of the note and
the remaining balance due on the note.
A Variety Of Ways To Sell Notes
If you're like most note sellers, you may automatically think of selling the
entire note. That could be the best route if the note represents a high value
and this is the best fit for your financial situation.
However, you also have the option of selling only part of the note. This
could be ideal if you like the interest rate you're earning on the note, but
just want to receive part of the cash now. Over the long run, a partial payment
may be able to provide you with a much higher rate of return.
For example, let's say you sold a house for $120,000, the buyer gave you
$20,000 as a down payment, and you have a $100,000 note at 7 percent for the
next 15 years. You enjoy getting the income each month, but need $30,000 for
another investment or to pay off debt. You could opt to receive that $30,000 in
exchange for buying the next "x" number of payments, after which the note would
go back to you for the balance of the term.
Or as another option, you could take a lump sum of money now, plus receive
part of the payment each month thereafter. If you're not sure which option would
be better, don't worry. A note buyer can work with you to determine the best
solution for your needs.
Tips For Selling Your Notes
Most mortgage note buyers focus on making the process relatively simple, easy
and fair. They offer competitive pricing, complete confidentiality and
hassle-free closings. However, the note purchasing business isn't highly
regulated, so be sure to locate and work with a reputable company. Here are some
things you should keep in mind about purchasing notes:
* Up-front fees: There should be no up-front fees. A good note buyer
isn't going to charge you just to provide quotes or check the buyer's credit.
* Closing and other costs: There should be no points, closing costs, or
other garbage fees at any point in the process. Any fees are already included in
the pay price to you.
* Appraisals: Note buyers normally require you to pay for the appraisal
or the title policy ONLY if the property appraises for less than the sales price
or there are problems with the title that prevent the purchase. However, these
payments should cover just the buyer's actual costs.
* Credit checks: Be sure that the note buyer checks the credit of your
property buyer up front. Unscrupulous buyers have been known to quote one price
and then lowering it toward the end of the process. They often use the excuse
that the "property buyer's credit was low". This is a twist on the old "bait and
switch" scam, and it's completely unethical.
* Written Agreement: Ensure that the seller gives you a written
purchase agreement covering the purchase price, contingencies, etc. Also, don't
hesitate to ask questions about anything that is not clear. Any items that are
not spelled out in black and white are part of the agreement. It's that simple.
Selling real estate notes is easy, and it can be a great way to generate a
lump sum of cash for other uses.
Got an opinion? We want to hear from you. Post your thoughts or comments here in our Mortgage Warrior Forum. Come join the conversation and say hello...onward mortgage warrior!
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