Private Note Buying
I have a client who is looking to lease purchase or owner finance properties and then sell the notes. Are there any standard terms note buyers look for when purchasing notes. Interest rate ranges like 10% to 12%? How long should the term of the note be? Any info that would make it appealing to note buyers would help.
Thanks
Hi JDC21,
Are there "standard" terms that we look for when buying notes? No, almost nothing is standard. Each transaction and the people/circumstances involved are different, and therefore require a different financing plan.
If you want to get the highest possible amount for a note, then you have to structure it so it conforms to the note buyer's advice/requirements.
Every note buyer has a different way of coming up with the cash value for a note, but basically it all comes down to the amount of risk that's involved. The amount of risk is determined by several factors or variables, if you will - and each note buyer has a different method of assessing the risk based on these factors.
LTV, Down Payment, Seasoning, Payment History, Credit, DTI, Employment, Property, Interest, Term, Balloon, Payment, etc are some of the factors that we look at.
No note is exactly the same, and therefore will have a different value.
It helps tremendously if you seek the advise of the person/entity who you would like to purchase the note from you when determing how it should be structured. This will ensure that you are getting the highest possible amount for the note. Also, keep in mind that a lot of note buyers have minimum requirements/restrictions on the notes that they buy (LTV, DP, Credit Requirements). The amount of the discount will depend on how favorably your note conforms to the desired terms/structure. In general, the lower the LTV, the larger the down payment, the better the buyer's credit, the more the note will be worth.
If you are creating and then selling the notes at "point of sale" (as soon as they are created from the sale of property) then you setting up a simultaneous closing. Simultaneous Closings are a powerful way to both buy and sell property if they are structured wisely/properly.
I would be happy to give you advise on how to structure your notes, and then purchase them simultaneously at closing.
Please contact me (look under my profile) and we can discuss this further.
Talk to you soon,
James