Why Sell to Real Estate Note Buyers?

There is one simple reason that people sell real estate notes, and that is to raise cash quickly. To achieve the desired result, however, you must make sure you’ve done your research: that you are selling to a reputable buyer or group of real estate note buyers, and that the buyer of the property you are financing has a reputable credit history.

A real estate note is the document created when financing the sale of a home or other (likely investment) property. Different categories of real estate notes include mortgage notes, land real estate contracts, and contracts-for-sale. Holding a real estate note means that payments are coming into you, but often, depending on the financing, those payments are small and trickle in, rather than providing a quick influx of cash. This is the reasoning behind selling to note buyers.

There are a couple of options when selling real estate notes. When choosing between these options, take into account your goal in selling the note. If you only need a smaller, quick influx of cash, it might be in your best interest to only sell a portion of the note. If you need something more substantial, you will likely want to sell the entire note. Whichever happens, the payments made by the buyer are the same-they will just make the payments to the new note holder instead of to you.

Selling only a portion of the note means selling “x-amount” of payments to the real estate note buyer. Many buyers will do this, but others will not, so be up front with how much of the note you would like to sell at the beginning.

While you will likely not get the true face value of your real estate note if choosing to sell it, there are other things to keep in mind when selling that will make sure you get as much value as you can out of the note. First, and most important, is that when selling, you should pay no up front fees to buyers. Most reputable buyers will check your buyer’s credit and give you a quote on the note without charging you any sort of “processing” fee.

Make sure that the note buyer checks the property buyer’s credit up front before quoting you on a price for the real estate note. A sign of an unethical buyer is quoting one price initially, then quoting a lower one later using the property buyer’s credit score as an excuse. This is a simple bait and switch and a strong sign that you should not deal with these real estate note buyers.

Get several quotes before selling. This can help to ensure you get the best value for your note. If possible, it is best to wait until at least six payments have been made on your note before attempting to sell; this is because buyers will be more likely to pay a higher price for a note that is considered “seasoned,” knowing that the property buyer is reliable in making payments.

Chances are, you will get somewhere between 20 and 30 percent less than the remaining value of payments due on the note. This is fairly standard, and though the discount seems steep, it is probably the best value you will get on the note. If you have not received an offer that is satisfactory, you can hold out until your note is more “seasoned.”

Selling notes that you hold can be a good way to get a quick influx of cash. Just make sure that you’re careful and don’t rush into it, and it can be beneficial for you and for the note buyer.

Closing the Real Estate Note Deal

As a qualified note finder, one of the top questions in the note business I get from customers is this…

What happens at the closing of my real estate note sale?

The funny part is that in my position, I have never dealt with the closing of a real estate note deal. My main job as a qualified note finder is to connect sellers with buyers. So, once the connection is made, I am out of the loop.

At this point, I started asking some questions, and doing some research. I couldn’t find one good article on how the closing is done for the transfer of a real estate note from one party to another. So, I asked some of the buyers, and this is what I found out.

This information should put your mind at ease, because it is a pretty simple process. There is not much work involved in the closing of a note. The hardest part is waiting for your check. Unfortunately, the closing does take a little bit of time.

Let’s break down the sale of a real estate note from beginning to end, so you can see clearly what is involved in a real estate note transfer of ownership. This will give you a good idea of what to expect, especially if you are thinking about selling your note.

First of all, you need a price quote. Qualified note finders give free quotes. I suggest you locate a finder when selling your real estate note. A qualified note finder has a wealth of information concerning notes, and understands the current market. Plus, a finder will save you valuable time and effort by finding you the right buyer who has the highest quote.

Next, you need to agree to the price quote. After your finder tracks down the buyer with the best quote, you have to make a decision. Do you take the lump sum of money now or do continue to deal with the headache of collecting that small monthly payment.

Once you decide to take the money and run, a contract is drawn up for you to sign that locks in the price quote. It is important to sign and return this contract as soon as possible, so the buyer can’t lower the price on you. The more prestigious buyers give a bit of time to decide without giving you any hassle. It is stated on the contract how much time you have to return it. I just wouldn’t mess around, when it comes to your money.

With the contract, you will receive a checklist of all necessary documents and information you will need to collect. The big ones are a copy of the secured instrument (mortgage, trust deed, land contract, etc.), a copy of the real estate note attached to the instrument, proof of fire insurance on the property, and copy of the payment record. Depending on the buyer there will be few more things you need, but those are main pieces of information and documentation. You send all the necessary documents and information you need to the buyer and the closing begins.

Now that the hard part is over, we can focus on how you get your check. The closing of the real estate note deal is pretty simple really. First, if hasn’t been done already, the credit of the payer on the property is checked. If the payer happens to have bad credit the buyer can default of the contract. It is my understanding that by federal law you can check the credit of the payer twice a year, and it is probably a good idea to check it before you get this far, so you are not wasting your time. Unless you know they have good credit, you should check it. If you would like the buyer to check the payer’s credit, the buyers I work with will do it for you for free.

Now, if the payer’s credit is up to par, then an appraisal is done on the property. After the appraisal is complete, and the property value meets the buyer’s standards, title of ownership is transferred. Finally, you get your check, and walk away from that small monthly payment with a nice lump sum of money.