A basic understanding of what note investors look for when buying notes.
The first thing you want to understand are basic categories of mortgage notes.
They are: Residential, Mobile Home, Commercial and Vacant Land notes.
Recognize that in certain parts of country they are referred to using slightly different terms but nonetheless, they can all be categorized as one of above mentioned.
are notes created from sale of residential properties, like: Houses, Condominiums, Townhomes and 1-4 family unit buildings.
Mobile Home Notes
are promissory notes secured by a mobile home and land it is on.
are notes originating with sale of any type of commercial business property, like: offices, apartments, industrial properties and warehouses.
Vacant Land Notes
are notes on developed or undeveloped land, or land not designated as a specific use property such as:
farm land, waste storage, does not include land that has been improved for development and building.
Now that we've covered types of notes there are, let's keep it simple and move on...
The next set of basics we need to cover are:
*What determines value of your note?*
Knowing factors that determine value of your note will save you a lot of time when it comes down to entertaining offers you'll receive from note investors.
*What payout options fit your situation?*
Not everyone needs to cash in their total note, so depending on your situation, you may find that you wish to structure a purchase with options.
Note Basics 101:
What determines value of your note?
Type of property securing note:
The more secure collateral, more valuable note.
Owner-occupied, single family residences are more secure than rental property, because payor is less likely to default on payments and risk losing roof over his/her head.
Unimproved land is risky, although some of investors in our network do specialize in this area.
The owner has paid less for it, and it is draining cash in form of property taxes and other expenses.
The owner of an unimproved lot may decide it is cheaper and easier to default on payments and lose lot than it is to sell it.
Down Payment amount:
Consider percentage of sale price as well as actual dollar amount. The more buyer has invested in property in form of a down payment, less likely he/she is to "walk".
Terms of note:
A shorter amortization (term) on a note also will bring a higher bid from a private mortgage buyer.
Shorter term notes have higher monthly payments, and higher monthly payments generate higher bids.
Payment history of note:
Payment history is a good indicator that payor is credit worthy.
Timeliness of Payments:
Reliability is also a good indicator that payor is a good risk for an investor.
The more cash payor has invested in property, less likely he/she will be to default on payments.
Position of note:
1st, 2nd, or 3rd position note. It's a rare find to get an investor willing to take a third position note seriously.
Interest rate on note:
The higher interest rate, more investors will offer for note.
The ideal situation is when your note's interest rate is 10% or higher.
Location of property:
If property is in a good location, it will be more saleable in event payor "walks".
Owner of property:
The investors will consider payor's credit history in general as well as payment history on note.