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Real Estate Investment Capital - Note Purchasing and Seller Financing |
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Win - Win Situations in Note Purchasing and Seller FinancingBy Thomas J. Franklin
Overview of My Business and ServicesI have provided trusted services for over 12 years specializing in purchasing owner financed notes, trust deeds, mortgages, land contracts, etc. I actively network with hundreds of note buyers and other sources interested in buying cash flows at a discount. I also assist Real Estate professionals and sellers by providing FREE advice for structuring notes that have favorable terms for investors to purchase. My company has created a network of Note Finders that locate notes for sale. When a Finder locates a note, he/ she passes them along to me. For their effort, I offer rewards, that is secured by a Fee Agreement entered into by my company and the Note Finder, for any referred deals that close without any additional responsibilities on their behalf.When I locate a note holder interested in selling their paper, I interview him/ her employing a questionaire to extract information about the note, the property, the payor, and the needs of the note holder. I utilize the information obtained to evaluate and grade the note. From the evaluation and grading process, I determine the note’s value which serves to protect the seller from note buyers presenting an unfair bid. Once a note seller has accepted a note buyer’s quote, I facilitate the closing process. For me, it is all about creating a “win-win situation” for all vested parties and fostering long term business relationships. Benefits of Owner Financing in Today' Real Estate MarketSeller financing is a "WIN-WIN" Situation for both REAL ESTATE INVESTORS/ LANDLORDS and BUYERS alike. For REAL ESTATE INVESTORS/ LANDLORDS, offering seller financing creates higher prices, bidding wars, and competition amongst buyers. There are not a lot of properties offering seller financing, so those that need seller financing are fighting over the same property. This creates attention thereby creating a seller's market, within today's buyer's market, allowing the seller to dictate price and possibly sell their property above fair market value. Another advantage for REAL ESTATE INVESTORS/ LANDLORDS is seller financing is a great tool to generate additional capital for future real estate investments and is it is a great "no-money down"strategy for buying both residential and commercial properties. For example, I work with an investor that purchases bulk REOs from banks. Once he purchases the property and rehabs them, he sells them using seller financing, holds the paper for a few months, and then comes to me to sell his notes. He uses the capital from his sales of his notes to purchase additional REOs. He constantly repeats this cycle…a "WIN-WIN" Situation for all vested parties.For BUYERS, seller financing is a way to to purchase property because he/ she cannot get approved for bank funding due to of their credit situation, other negative factors, or maybe they do not have enough capital to provide a 20% down payment. We are in a time of stricter lending standards and instability in housing prices. Another common problem, in today’s market, is many appraisers are "low balling" appraisals to hedge against further property depreciation thereby protecting banks. One way for sellers who are motivated to sell, is to offer seller financing… a "WIN-WIN" Situation for both buyer and seller. How Much Can I Receive For My Note?The majority of note holders expects to receive top dollar for their paper, but are surprised to learn that their note may only be worth $0.55 on the dollar. Why is that? The answer is simple. REAL ESTATE INVESTORS/ LANDLORDS are unaware of the factors that note buyers consider when offering a price to purchase cash flow. Seller financed notes are evaluated and graded in the following areas: equity (accounts for 50% of a note’s final grade), seasoning which means how long a note has been in existence (accounts for 20% of a note’s final grade), the payor’s credit score (accounts for 20% of a note’s final grade), and the payment history (accounts for 10% of a note’s final grade). Using this information, a grade of AAA, AA, A, AB, etc. is assigned to the note. The note’s final grade and property type is used to determine the Wholesale Yield Price and the Maximum Investment to Value. This is what the note is worth. Usually, a buyer will offer one of these two prices.The advantage of using my services is my ability to determine a note’s value prior to bids from note buyers. This allows me to sort through all of the bids and ensure that the note seller receives top dollar, for their paper, as dictated by current market conditions. It is important to remember that for any seller financing that is created, the note creator MUST retain a hard copy of the original promissory note AND either a hard copy of the payor’s credit report or their Social Security Number. These are vital pieces of information that a note buyer will use to perform his/ her due diligence. Without these, it is impossible for a person to sell their note. One common mistake REAL ESTATE INVESTORS/ LANDLORDS make is they never bother to find out the payor’s credit score, which is a deal killer to a note buyer. Cashing OutSome people may be thinking, "I don’t want to hold a mortgage and receive monthly payments. I want capital to purchase more property." "My clients don’t want to be bothered with receiving monthly payments, they want to cash out." This is where I enter the picture. I can assist by offering guidelines in structuring terms that would make the note more marketable to investors, lower the seasoning required so they may cash out as well as possibly lowering how much their note would be discounted. Depending on the terms, the mortgage or note only needs to be held for a few months to create what is known as “seasoning.” After seasoning payment history has been established, they come to me and say, "Hey Tom! I have this note secured by Real Estate that I want to sell." I will ask him/ her a few questions about the note, offer a price, and the deal can close as fast as 2-3 weeks. Please contact me if you’d like to discuss this information or for help with any of your note transactions.
Sincerely, |
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