One of the most common items new note brokers run into is they start seeing the “For Sale By Owner” or FSBO signs pop up around them.
Granted, those signs have always been popping up, but now that you are in the note business you begin to see some additional opportunities.
But are they good opportunities?
The existence of a “For Sale By Owner” sign does not necessarily equal a potential cash flow note deal.
If anything, it may be a distraction.
Let me explain.
1. “For Sale By Owner” does not mean the seller is willing to owner finance. It just means that they are attempting to sell the house without using the services of a Realtor. It could be they are trying to make a few extra bucks. If that is the case, they will most likely not be interested in carrying back a note (and then selling that note at a discount).
2. “For Sale By Owner” does not mean they have the ability to carry back a note. In other words, there is no guarantee the seller has enough equity to make for a viable note sale. It is more likely they have a large underlying lien (bank loan) that they need to pay off. Could be another reason they are trying to cut out a Real Estate Agent and keep the fee.
3. Sometimes the reason someone is selling “By Owner” is that they did not believe the real value their home was worth. A real estate professional may have told them what the value was, but the seller is trying to sell for more than that (above the fair market value).
4. Just because the property is for sale by owner, does not mean that the potential buyer has any need for owner financing. The sale could end up involving a bank loan or even a cash sale. In either case, there never would be a private note created; to be later purchased/brokered.
5. At this point, there are very few Note Buyers that are interested in a “simultaneous closing.” A simo is where the Funder purchases the note without any seasoning (or payments having been made). Many people want money now – which is why they are more apt to take a slightly lower cash offer than deal with the hassle of selling a note later.
It is not that “For Sale By Owner” properties do not have the potential to be notes – some do. But most do not.
Do you want to spend your valuable time looking for notes that are already in existence or do you want to spend your time looking for deals that may be created.
I spent a lot of time with “For Sale By Owners” when I was first starting out.
It was a great experience builder and my best financial calculator got quite the workout. But in the end, I would guess I only closed 1 out of 100 people that I actually spoke with. (1 out of 500 that I contacted and never heard back from). And that was during a time that simultaneous closings were popular – those numbers would be even less now! (See the article Selling Mortgage Notes: Where Have All the Simos Gone?).
If you do come across a “For Sale By Owner,” it is a good idea to simply let them know what you do.
Don’t spend a lot of time – again a note may never be created. Send the seller a card or direct them to a an article on your note business website. Keep them on your radar and see if the property sells with some sort of owner financing. If it does, now you have something to work with. Or improve your odds by targeting sellers that have already indicated they have an interest in offering seller financing (see the article Finding Mortgage Notes with Reverse Ad Marketing).
Focusing your marketing efforts looking for existing notes (as opposed to notes that may be created) will always yield better results…and profits!