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