Should I Use a Full or Partial When Selling Mortgage Notes?

There are many options when selling owner-financed mortgage notes. How many options will be largely dictated by a note buyer’s underwriting components, such as seasoning on the note, down payment, equity, and the payer’s credit.

You can usually sell the entire note, but perhaps just selling a specific number of payments is your best option.

Deciding on whether to sell the full balance of the mortgage note or to consider a partial really comes down to three things.

3 Questions When Selling Mortgage Notes

1. How much do you need?

If you have a $50,000 note balance (amount owed to you) and you only need $10,000 – don’t sell the whole note. The “discount” will be disproportionate to the amount of money that you need.

If the amount of money you need is close to the overall balance of the note you are selling, consider the full option.

2. Can you invest at a better return than the amount of the note discount?

Many people sell a note to pay off a bill or take care of a financial emergency. In other cases, people sell because they want to start a business or invest elsewhere.

If you are selling your note at 12% than you just need to invest the lump sum money in something that earns better than 12%. This may sound harder than it is, but if you are using some of the money to pay off a credit card or other high-interest debt, you will most likely come out way ahead.

3. Do you just “want out” of the Mortgage Note?

Some people just want to be done with the hassles of collecting payments on mortgage notes. You may not need all of the money, but you may not want to deal with holding a remainder interest in a note (ie: waiting for more money later). Sometimes peace of mind comes with a price. You may take a bigger discount selling the whole note, but you wont ever have to worry about if the buyers pays on time, keeps the property insured, and keeps the real estate taxes current.

This is certainly separate from a “financial decision.” Those are easy. They fit into a calculator and the numbers don’t lie. But humans are not built like machines (thankfully). So sometimes you just have to let your gut intuition be your guide.

The choice is yours…

The nice part is that, you typically have options when selling a note. Sometimes you may sell a partial only because, due to the underwriting, you would be just giving away the (full) note for the same price.

If you are selling a mortgage note always ask the Note Buyer or Consultant for more than one option. If you are a Funder or Note Broker – always present more than one option when offering to buy mortgage notes.

More Information on Selling Mortgage Notes

Top 5 Way to Buy Mortgage Notes

How Falling Home Prices Hurt When Selling Mortgages

Full or Partial Mortgage Sale? It’s All Dollars and “Sense”

Note Buyer Directory and 21 Insider Secrets You Must Know Before Selling Notes

 

 

Calculating Cash Flow Notes and a Contest!

I have written before about how note buyers accelerate payments on cash flow notes. One such strategy was the Double Your Payment/Cut The Interest Rate in Half.

Another method is to simply go for an Early Payment With Incentive.

To this day, the following situation is still my favorite example of this method.

It was late December and we were looking at a small note with a $10,000 balance. The payment was only $132.15 per month with a 10% interest rate and 120 payments left.

The note had been purchased at a discount for $6,000, which made for a 24% anticipated return.

Not bad…but we could do better! Read more

How Note Buyers Can Accelerate Return

Holding or buying mortgage notes and want a quick way to accelerate your return?

Sure, you can’t go back to your payer/buyer and tell them to mail more money or even increase their interest rate.

Matter of fact, you purchased the note “subject to” all the terms and conditions already in place and can’t change a thing…unless the payer wants to change them!

Try this…

Offer the payer to cut the interest rate in half (face rate of the note)

if they double their payment!

Let’s say the original note is: Read more

The BIGGEST Mistake Investors Make When Buying Cash Flows

In 1996 I was in the room with some of the brightest investors of our time.

They batted around terms and strategies that left my head spinning and my hand sore from writing down as many notes as possible.

I distinctly remember, just before ending the day, someone (not me) made a comment that brought everything to an abrupt halt.

“If I buy a note that pays for 10 years at 12%, I don’t have to worry about investing again for another 10 years.”

What got me was the number of people that agreed. Read more

Finding Cash Flow Notes – Does It Help To Get Social?

It seems you can’t make a move today without being reminded of the surge of “social media” outlets. But do these outlets actually help anyone do business?

What about finding cash flow notes?

First off, let’s look at some of the top social media sites in 2010 (in no particular order).

YouTube  -  Twitter  -  Flickr  -  Digg  -  Facebook  -  Del.icio.us  -  Propeller

Reddit  -  Metacafe  -  Technorati  -  StumbleUpon  -  LinkedIn  -  Mixx  -  Slashdot

My Space -  Class Mates  -  LiveJournal  -  Yahoo 360  -  Scribd

Blogger  -  WordPress  -  MSN Groups

Wow, where do you start?

There are really over 100 social media sites that have “significant traffic.” But you certainly don’t have the time to check them all out. Here are a couple that we think deserve your attention.

1.     LinkedIn – Touted as the “business” option for social media, you can connect with colleagues, clients, and prospects. You can send and receive emails as well as create and join groups.  Think business networking groups in an online environment.

2.     YouTube – Great venue for sharing videos and a low price (how is free for low?). Be sure to allow people to re-post your video on their site if they want to share.

3.     Facebook  – Ever since the addition of Fan Pages and Groups, Facebook has become a potential melting pot of information. If you use the “group” function you can also email people (within Facebook) directly. A great way to let them know what you are doing.

4.     Twitter – Short messages to a group of “followers.” This venue gives the user and opportunity to add a personal touch. Just don’t go too far – no one cares what you had for lunch. Send out more than 4-6 updates per day and you will probably find your followers start to ditch you – especially if you are doing nothing but selling them.

Although the jury is still out on how many actual deals you can get from social media, there is no question that it will be here for awhile and millions of people are interacting in this venue.

In all cases, you want to be sure that you are delivering useful content, not just a sales pitch (some sites will even have rules against you doing just that). Contribute solid information and you just may find yourself sought out when it comes to buying owner financed notes!

Buying and Selling Notes – What is the Current Property Value?

One of the considerations when buying and selling mortgage notes is knowing the current value of the home. After all, the property is the collateral and knowing its true value will greatly affect how much an investor will pay for a note.

Historically this process was a bit easier, when everything was in an “up” market.  But with property values still on the downside or just recovering, it is often difficult to put a (safe) number on it. At least one that everyone agrees on.

Although there are excellent programs on the Internet that help the average consumer to get an idea of value, they are not always accurate. The actual value of a property can be determined in a couple of credible ways.

Often, note investors get what they call a “drive by” appraisal or valuation.

Usually performed by a licensed appraiser, the report will  include other sales or comps in the area. The main difference is a “drive- by” evaluation does not require the appraiser to have access to the interior of the property. The appraiser actually drives by and takes pictures from the street for the report.

Some investors are using what is called a Broker Price Opinion (BPO) – an evaluation based on the advice of a real estate agent or broker. They are often very similar comparable to a “drive by” and at a lower cost but do not follow the strict guidelines of a certified appraiser.

The note buyer may even require a full interior appraisal to get comfortable with the value. This might be the case when there are substantial improvements to verify or there’s concern over the property condition.

The actual approved or preferred method will be up to the individual investor.  While they are buying the mortgage note and not the property itself, the value is still important in deciding risk, investment to value (ITV), and the price they will pay to purchase the remaining payments.

Quoting Cash Flow Notes

When it comes to quoting and buying mortgage notes there are basically two camps of note brokers.

One camp takes the “Quote on the Fly” approach, while the other has the “No Note, No Quote” mentality. Read more

How to Negotiate Cash Flow Notes

One of the more popular questions, after “How do I find notes?” is “How do I negotiate with a note holder?”

Since the cash flow business affords consultants the ability to determine their own fee, many new note brokers feel challenged on how to present an offer. These 5 tips should help you be that much closer to closing the deal! Read more

Top 5 Ways to Buy Mortgage Notes

One of the things that make buying and selling notes so appealing is the multitude of ways an investor can purchase a note.

Frankly, you are limited only by your imagination. Well, maybe imagination and reaching a desired yield.

Here is a quick look at calculating the cash flow business that even those with math phobias will like.

The Top 5 Ways to Buy Cash Flow Notes

1. FULL – A full is just that. Buying the entire note.

If the seller has 322 payments remaining, the investor purchases all 322. The full purchase is the most popular way to buy mortgage notes.

Even though it may not be the best choice for a seller, many sellers just want to be completely done with the note.

2. PARTIAL – Anytime an investor purchases something other than a Full it’s referred to as a “Partial.”

Typically when someone uses the term “Partial” we are talking about purchasing the next immediate “X” Number of Payments. This can be any number of payments.

The most common partial purchases are 60 months, 120 months, and 180 months.

If the investor purchases the next 60 payments, the promissory note reverts back to the seller on payment 61. The seller, at their discretion, may choose to sell more payments or keep the remaining payments.

3. PAYMENTS ONLY – This type of partial purchase involves a balloon mortgage note where the seller is due a large balloon payment at the end.

For example, the note holder is to receive 120 more monthly payments and then a balloon payment of $50,000.

“Payments only” would be when the investor purchases just the remaining 120 monthly payments but none of the balloon payment. The seller of the note would retain future possession of the balloon.

4. SPLIT BALLOON – Very much like the “payments only” option except in this case the investor purchases all of the monthly payments (120) and a portion of the balloon.

For example, the investor purchases all the remaining 120 payments and $30,000 of the balloon payment.

This would leave the seller the remaining $20,000 due of the balloon payment.

The seller and investor have effectively “split” the balloon ($30,000 to the investor, $20,000 to the note holder).

5. SPLIT PAYMENTS – In this type of partial, the investor purchases a portion of each monthly payment.

It is typically reserved for when the seller of the note is receiving a sizeable amount each month (although it really could be implanted at any time).

For example, let’s say the note holder is due 145 payments of $2,500.00 each month.

The investor may elect to purchase $1,750 of each month. This would leave the remaining $750.00 each month for the seller of the note.

Typically the payer mails the full $2,500 each month to the investor and then the note investor forwards the $750 to the seller. This avoids confusion among the payer of the note as well as helps the investor make sure the note is being paid in full each month.

The “amount” of each monthly payment that is purchased is completely up to the agreement of the investor and seller. It just needs to be worth the extra handling efforts.

MAKING THE CHOICE

As you can see, there’s more than one way to buy mortgage notes. Matter of fact, there may just be literally hundreds of ways to purchase notes since many of the methods can be used in combination with each other (including Reverse and Split Disbursement partials)

As long as the deal can fit into the best financial calculator, there is a mathematical way to purchase the note.

So which method is best?

The best method is dictated by the needs of the note seller and how best to meet that need while still protecting the yield and exposure requirements of the investor.

How Much Money Will I Make in the Cash Flow Business?

 

 

 

 

 

 

 

It’s a fair question.

We find it’s the most popular with someone just starting out with cash flow notes. It’s also the most difficult to answer.

Nobody wants to just hear, “Well, that depends.” So here are Read more

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