Welcome to Real Deals! It’s always easier to learn from real life so here we share information from actual owner financed transactions.
When a note holder sells a portion of the note they will often consider selling the remaining payments at a later date. A partial purchase can provide repeat business to both note brokers and investors similar to the experience on this vacation lot.
The seller was offering a lot for sale that was part of a Golf and Camping Club located in the State of Virginia. The property could be used for camping, RV parking, and other vacation purposes. The seller agreed to sell the property for $25,000 with a $5,000 down payment. The balance of $20,000 was carried back as owner financing with the buyer paying interest at 6.0% per annum with 60 monthly installments of $386.66 each.
After receiving 4 monthly payments from the buyer, the seller contacted a note broker to raise about $8,000 by selling a portion of the 56 remaining payments on the Note and Deed of Trust. A note investor agreed to pay cash now to the seller by purchasing the next 35 payments of $386.66 each. When an investor buys a portion of the payments it is known as a partial note purchase rather than a full note purchase.
At closing the seller signed an assignment of the Deed of Trust, an endorsement to the Note, and a partial agreement outlining the rights to the 21 payments that would remain after the investor received their 35 payments purchased. The partial agreement spells out important terms of purchase including what happens in the case of early payoff, delinquency, or foreclosure.
Several months passed and the seller desired to raise additional cash. He contacted the partial note investor through the note broker to see if he could go ahead and sell the remaining payments for cash now rather than waiting until the partial paid off.
Since the note payments had been coming in timely from the buyer, the investor agreed to purchase the remaining 21 payments for approximately $3,000. Due to the time value of money the payments due further out in the future are not worth as much as the payments due immediately.
Since all due diligence including title and appraisal had been completed for the partial purchase it was a quick and easy process to close the second purchase. The seller simply signed an Addendum to the Partial Agreement that transferred their remaining rights to the note making it a full purchase.
The seller was happy to receive the funds in two installments to satisfy the timing of his cash needs, the note broker was delighted to earn a referral fee on two transactions, and the investor purchased a note yielding over 23% after expenses.
Real deals are based on actual transactions completed within the past ten years. Market conditions change frequently resulting in pricing and underwriting changes by note investors. Work with qualified professionals when creating new notes to obtain accurate and up-to-date pricing and investment parameters.