What is Due Diligence?

Before a note investor will pay cash to a seller for future payments, they perform what is called “due diligence”.  This is really just a fancy word for research.  You can simplify the process by being prepared for these common note investor requirements. Read more

Real Deal #142 – Balloon Note in Florida

Welcome to Real Deals!  It’s always easier to learn from real life so here we share information from actual owner financed transactions. 

It was a nice home in Florida with the seller asking $234,000.  The buyer was eager to purchase the property and had saved almost 10% for a down payment.  There was only one problem. The buyer was unable to obtain a conventional mortgage loan due to some past credit issues, primarily attributed to medical bills.  Seller financing was the solution. Read more

What’s the Big Deal with Note Rates?

The interest rate a seller agrees to accept when providing owner financing to the buyer has a large impact on the note’s value.  Unfortunately, many sellers overlook this important decision.  Here’s why the interest rate on a note is such a big deal. Read more

The State of the Note Industry

Around the country real estate markets have softened leaving a glut of inventory, decreasing values, and extended marketing times.  The result? More sellers are offering to finance a portion of the purchase price for the buyer in an effort to “Move that House”!

While sellers are motivated, lenders on the other hand are hunkering down or running scared.   In the face of the credit crunch and increasing foreclosures, lenders have tightened underwriting requirements.  Fewer loans are being originated and this also contributes to an increase of seller-financed private mortgages.

While the upside is increased private note inventory, the downside is fewer notes can be sold to investors.  While seller financing is an alternative to bank financing, note investors are not Read more

Outside Closings Protect Sellers!

When an investor has performed their research and is ready to purchase a private mortgage note they will ask the seller to deliver original documents and sign the assignment package.  The investor will want these original documents before the funds are released to the seller.

A note seller will understandably wonder “How do I know I will ever receive my money once I turn over the documents establishing ownership?” 

So the investor wants the documents before the money is released and the seller wants the money before the documents are released. 

This impasse is easily solved by using an outside closing through a title company, attorney, or escrow company.  The outside closer will act as an independent third party (or fiduciary) protecting the interests of both parties. 

An outside closing is basically an exchange of money for documents. The outside closer will receive the proceeds from the investor into their trust account and also receive the documents from the seller. It is not necessary for either the investor or the seller to physically be present for the note closing with the use of overnight delivery and wire transfers. 

The fee for outside closings average $200 – $400 and can be paid by either party or split equally.  Any legitimate note investor should be willing to participate in an outside closing through a licensed and bonded closing agent. 

Outside closings offer protection and peace of mind to both note sellers and the note investors.

Moneymaking Opportunities with Notes!

Whether a seller, investor, or note broker, there are many opportunities to make money with owner financed or seller carry back notes.  There is a lucrative secondary market for seller financed notes also known as the paper business. Here are a few of the most common ways people make money in the note business.

Maximize Selling Profits

A seller often takes back financing for a buyer to appeal to a larger group of buyers and maximize the sale price. A property seller may also elect to take back a portion of the sale price for long-term interest income.  Why should the banks make all the money?

Did you realize that a bank earns back almost 2.5 times the loan amount on an average $100,000 loan at 7.5% that runs for a full term of 30 years? The payment would be $699.21 based on a 360 month amortization which means the buyer will pay back over $251,715.60 after 30 years on the $100,000 loan.  All due to the power of interest!

Referral Fees

A note broker or note consultant earns a referral fee by acting as a financial middleman between a note seller and a note investor.  A note broker markets to note holders offering to help them liquidate their note payments for cash today.  The note broker then connects the note seller with a note investor, earning a fee at closing.  This fee can range from hundreds to several thousands of dollars depending on the size of the note and their relationship with the investor.    

Interest Income

Investors purchase notes for the interest income.  First an investor can earn the interest rate or face rate charged on the note.  An investor can further increase their return by buying the note at a discount.  For example if a note has a balance of $25,000 at 8% interest the investor can offer less than $25,000 to purchase the note for a return of 10% or more.  The greater the discount the more the return is increased!

Rather than holding for long-term interest income, an investor might also purchase a note at a discount and then resell at a later date for a profit.  This is often accomplished by combining several notes together in a group or portfolio selling at a higher price to a larger bulk investor.

Learn More About The Note Business

If you would like to learn more about being an investor or note broker you will also enjoy the following:

Learn the Note Business in 60 Seconds? – OK, you can’t really learn the cash flow note business in just 60 seconds, but this “speed round” of 11 questions will certainly get you started.

5 Myths About the Cash Flow Notes Business – I want to have a very candid conversation about working in the cash flow notes business. Just what it is, how you may be part of it, and some common myths and facts.

How Can I Find Cash Flow Notes – Knowing how to find cash flow notes is the most important skill note brokers can learn. It can also be the most difficult.

Finding Cash Flow Notes Training Videos – Watch this series of free training videos including 5 Ways to Find Cash Flow Notes.

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