Welcome back to our series “Selling a Real Estate Note 101”. If you have been following along, hopefully you have gained a basic understanding of what is a mortgage note, the process of selling your mortgage note, how the value of your note is determined, what to look for in mortgage note buyers, and some knowledge of your note sale options. If you would like more information on any of the above topics, please call us directly so we can help answer your questions.
Now that we’ve covered the basics, we wanted to summarize the most important tips for selling a mortgage note (also called a real estate note or promissory note), and helpful tips on how to create a mortgage note for a future sale.
Best tips for selling a mortgage note:
- Familiarize yourself with the process of selling a mortgage note, how the worth of your note is determined, and what to look for in a mortgage note buyer- BEFORE you start requesting quotes. Having your paperwork and questions on hand when speaking with potential note buyers will facilitate the process of negotiating the sale of your note.
- Explore your options; every mortgage note is different. For example, selling only some of your payments (known as a partial) may be more advantageous for you and may offer a higher rate of return. A trusted and reputable note buyer can help you determine your best options.
- Verify that there are no upfront fees to the seller (with few exceptions), as these are already figured into the purchase price.
- Make sure the mortgage note investor checks the credit of the payor/buyer upfront to avoid any sudden drop in purchase price quotes due to unforeseen credit issues.
- Review your written purchase agreement with a Real Estate Attorney, if possible.
Tips on creating a mortgage note for owner financing (also called seller financing):
If you currently hold a note that you may consider selling in the future, one option is to sell your real estate note to a buyer using owner financing. Some of the common reasons people choose owner financing include: attracting more potential buyers for your property, offering more flexible terms (often the case when working with buyers who are not able to obtain financing through a bank), or managing a sale between family members or as part of a divorce agreement. These tips can help you create value and structure your mortgage note for an optimal sale through owner financing.
- The larger the down payment, the better. For residential, a down payment of 10% is ideal, 20-30% for commercial notes.
- The more equity in the property, the better. This is achieved, in part, with the down payment mentioned above, as well as principal payments received. This adds value to the mortgage note.
- Consider the credit of the buyer and always obtain a current credit report. Ideally, the credit score should be 600 or above (the higher, the better). Their credit rating can influence the value of the note and can play an important role in determining a down payment to protect your property.
- Make sure that the sales price is aligned with current market values and that interest rates are comparable to bank rates.
- As with most real estate, the condition of the property is another important consideration when creating value for your note. A note will be worth more when the property is in good condition, located in a desirable area (with access to power and water if it is a land contract), and is currently owner-occupied and well maintained.
Whether you want to sell your mortgage now or in the future, we hope you find these tips helpful. If you have any insight that you would like to offer our readers based on your experiences with selling notes, or would like us to address any particular topics of interest, please share them in the comments below. As always, thanks for reading and please feel free to pass this information on to others!