Important steps go into quoting and making note offers. It’s not a number pulled out of thin air.
One of the hardest parts in purchasing real estate notes is determining a price. This is when you decide your yield, risk level, and strategy. If you are referring, wholesaling, or brokering notes, this is your opportunity to earn your fee for finding the note.
While offers are not “set in stone” and can change based on underwriting and due diligence, it’s important to get as spot on as possible. Just like the offer can change, the Seller can find another investor if your offer is suddenly reduced.
That’s where doing a little research comes in. You want to try to find any skeletons — before making an offer. That’s not always possible, and there are often bumps in the road, but researching a deal before making an offer helps keep the process smooth while also protecting yourself.
First – let me introduce myself. My name is Mikayla. Typically you’d find me in the background working on the behind-the-scenes items, but I started working at the quoting desk as well. Here are some things I’ve experienced firsthand and are on my checklist after the first months of quoting and closing note deals.
Researching a Deal – Steps Before the Initial Offer
Step 1 – Talk with the Note Seller
Seems obvious, right? You have to talk with the Seller to get the information about the note.
But now is your chance to go beyond the note terms. Make it a conversation—not an interview. Make a connection with the Seller. You’re looking to find out…
- Why are they wanting to sell?
- Would they be interested in a partial purchase, or do they need a full buyout?
- Is this their only note? Or do they have others and know the ins-and-outs of the industry?
- Do they have a relationship with the Buyer?
- Do they know what is happening with the property currently?
All of that information can give you some insight into the Seller, Buyer, and the property or business. You’ll often start to see some red flags if something is happening with the note (non-performing, issues with the Buyer, etc.), or you’ll find the green flags of a great performing note and someone who wants their money now.
Step 2 – Look Up the Property
Google sleuths, it’s time to get researching! Do a Google search for the property address and check it out on listing sites like Zillow, Realtor, and Google Maps.
Start by comparing the listing photos to Google Maps’ street view. If the property was recently renovated, you might be able to see the before-and-after. Alternatively, the street view may show a property that the Buyer hasn’t well maintained.
Check out recently sold homes in the area and see how they compare to your Sales Price. Check out the area and see what’s happening around the house or neighborhood (including what neighboring homes look like).
Do a little research to see if the property had a rental listing to verify owner occupancy or rental status.
You want to understand the home’s condition and the vibe of the community to help determine if the note is within your range of expertise.
Step 3 – Check the County Assessor
Most County Assessor offices have an online property/parcel search that provides information like ownership, value, property information, and, if you’re lucky, a list of associated recorded documents (depending on the county/state).
Don’t be surprised if the assessed value is lower than what you see on listing sites or the sales price — but how much lower is it? Was the Sales Price significantly over the assessed value? And is that difference typical for the area? The value will later be confirmed by a BPO or drive-by appraisal but some initial value research upfront goes a long way in accurate pricing.
Check to see if the county has the same owner listed as the Buyer (or, if it was a recent sale, the Seller). If recorded documents are available, download copies so you can verify some of the numbers provided.
Step 4 – Check the Taxes
While on the county site, verify that the property taxes have been paid and are not outstanding.
Delinquent unpaid taxes should factored into the offer or paid current before purchasing a note. This could be done by working with the Buyer to bring them current, the Seller paying from the proceeds, or deducting the cost from the offer with the Seller’s consent.
Unpaid taxes don’t stop a deal, but they do add a bump in the road, which, coupled with other red flags, could help you determine if the deal isn’t for you.
Step 5 – Check the Numbers
Many Sellers aren’t ready to hand over copies of documents when looking for a quote. Because of this, unless copies were recorded online, you’re going off what the Seller stated for the note terms and current balance.
*This is where the “offers aren’t set in stone” comes in.
But that doesn’t mean your calculator stays in the drawer. This is where you determine if the math is “mathing” (as the kids say). Do all the note terms match, or do you get a different payment/interest/term? Does the provided current balance match the amortized?
Always verify the numbers before referring a note or writing an offer.
Sleuthing Pays Off with Note Offers
Before writing an offer — DO THE RESEARCH! A little sleuthing goes a long way in finding red flags before you are knee-deep in due diligence and underwriting. You’ll also want to make the quote subject to standard underwriting any outstanding note buying checklist items.
Once you have a good view of the real estate note, it’s time to sit down and determine what you’re willing to offer for it. Keep in mind your ideal yield, your investing goals, and your experience.
Additional Note Investing Resources
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