“As a note broker, for the past 18 years I have purchased many publications on the subject of seller-financing and note brokering. Without hesitation, I highly recommend Tracy & Fred Rewey’s “Personal Profit Series: Notes” (PPS) to any one in the note business, from beginners to seasoned veterans. I keep a copy on my desk and refer to it often. For my money, PPS is the most comprehensive, thorough, detailed, and well-written book on the subject of privately-held notes, I have come across.” – Kevin O’Connor from Charlottesville, VA

Moneymaking Opportunities with Notes!
http://noteinvestor.com/note-brokers/moneymaking-opportunities-with-notes/

If you want the complete how-to manual (over 475 pages) we suggest:

Personal Profit Series Notes: The Complete Moneymaking System to Buying Referring, Creating, and Holding Real Estate Notes!
http://noteinvestor.com/owner-financed-resources/bookstore/

All the best,

Tracy Z. Rewey

The protective equity should consist of about half cash down payment with the remainder as a seller-held junior note that is kept for cash flow. Less cash down payment means the borrower has less invested and less to lose by walking away from the property.

Simultaneous closings that sell the property on a seller note and a note buyer simultaneously funds the note purchase to pay off the existing liens are rare these days. Most note buyers are requiring deeper discounts and much more documentation to verify value and borrower credit worthiness. It’s often simpler for the seller to keep the wrap note for 6 to 12 months to provide a verification of mortgage payments (seasoning the note) before attempting to sell the note.

For example, a property with FMV $200,000 has $120,000 existing debt (60% FMV). The property is sold for 10% down, 70% seller wrap-around, 20% seller held junior. The seller will likely choose to season the wrap note for as long as the existing senior lien holder will allow (6 to 12 months should be negotiable) in the case of a “due on sale” clause. With adequate seasoning, the wrap-around note (70% FMV) could be sold for a nominal discount to pay off the 60% FMV underyling lien with a little cash left over for the seller. That left over cash plus the down payment plus the junior note cash flow will likely total more than the original equity in the property at the time of the property sale.

On the other hand, highly leveraged properties will probably require the seller to hold the wrap-around note for a long time to reduce the underlying debt to an ITV ratio that is acceptable to a note buyer. Charging an interest rate that is higher than the underyling debt and devoting the extra interest income to principal reduction of the underyling debt will speed the reduction the ITV ratio.

If you intend to hold a wrap-note, then be sure to discuss the tax consequences of the principal and interest income with your Certified Public Accountant.