Making Note Buyers Bite: How to Make Your Note Attractive to Buyers
Posted by Admin on May 25, 2017 | 0 Comment
When it comes time to sell a mortgage note, you may find yourself overwhelmed wondering whether your note is even worth taking to market. After all, how can you know anyone would even want to buy?
Firstly, if you want to sell a mortgage note, it is worthwhile simply to request a quote from a reputable buyer. We want to formulate the best exit plan for you, and an experienced buyer can work with almost any situation.
But if you are truly worried about what makes a mortgage note attractive to a prospective buyer, look no further.
Note buying can be a complicated balancing act, but here we will discuss five key factors that make your note attractive to a potential buyer (plus a few bonus factors at the end!)
We’ve all heard that this is the number one rule of real estate in general, right?
Location, location, location.
The same holds true for mortgage note buyers. Because a private note buyer buys debt, not property, they are free to purchase notes in all fifty states, depending on their investment appetite. This provides a certain amount of flexibility, but also requires an in-depth knowledge of the laws in each state and how they differ.
When a note buyer is approached by a potential seller, they first consider the location of the property, which is a broad consideration, taking into account the state laws, the local market (which we’ll get to in a moment) and the potential profitability of the note.
This can lead many sellers to think they cannot sell their note, because the property in question isn’t in a large metropolitan area, traditionally thought of as a safe bet in terms of property investing.
However, the times are changing on that particular aspect…
Coming under the heading of location, a note buyer is going to consider the local market surrounding the property.
Markets have been fluctuating recently, and while the higher end markets like New York City and San Francisco are still great places to invest, we are seeing real estate booms in lesser known cities. We discussed this more in-depth here, but the general gist is that millennials are finally getting ready to purchase property, but are flocking to places where the cost of living is lower and jobs are plentiful.
All this to say, don’t hesitate to sell a mortgage note, even if you think it isn’t in an ideal location. Private note buyers are used to keeping eyes on multiple markets and watching the big picture in terms of real estate.
Unexpected and lesser known markets are starting to look very attractive to prospective mortgage note buyers just now.
This really comes down to the preference of your note buyer. Some note buyers specialize only in commercial or only residential property. Others purchase only certain types of property notes such as mobile homes with land. Others can and will purchase the full range of promissory notes and mortgages.
Amerinote falls into this last category, as we purchase mobile home notes, residential notes, as well as commercial mortgages, nationwide.
That said, different types of notes may be treated differently, may vary in value, and may net you a different cash settlement, so your private note buyer is going to take this into consideration when issuing you a quote for your note.
This comes back to the location, as well as the type of note.
Different states have different requirements should the note need to go into foreclosure, as well as different requirements for mortgages in general.
We went over the differences between a mortgage and a deed of trust here, and their requirements Vis-à-vis foreclosure.
Foreclosure isn’t something a note buyer is anticipating, necessarily, but it is a consideration any time an investor takes on the risk of purchasing debt.
Foreclosure can be a lengthy, expensive process. Because of this, mortgage note buyers are going to weigh several factors:
First, whether the note is a true mortgage or a deed of trust. Different foreclosure procedures apply to each.
Secondly, what does the payment history on the note look like (more on that in the next section)? If there is a good likelihood of the current borrower continuing to make regular payments on the loan, the note becomes that much more attractive. Predictability of payments is key with most investors when considering an asset for purchase.
This is essentially just risk management. A mortgage note buyer has to balance the profitability of the note with the risk of foreclosure to make a wise decision in order to offer you the proper exit strategy for your note in the form of a lump sum of cash.
This is something that not much can be done for after the fact, but if you hold a mortgage or are looking at seller financing your property with sights to sell in the future, it is something to take into consideration.
It is vitally important to keep accurate records of every part of the seller financing process.
From original documentation to payment records (using a title company / attorney’s office as well as a loan servicing company is preferred by most investors), having this kind of documentation is going to make your loan much more attractive to a mortgage buyer, and help them give you the best possible quote for your note.
Other Factors and a Wrap-Up
When to buy a note and how much to offer for it is a complicated process. It’s vital that when you sell, you are using a reputable, experienced buyer, certified and ready to purchase a variety of note types.
The factors governing a note buyers decision are many, and we haven’t even mentioned all of them here.
Other factors that might influence the situation could include:
- Property equity
- The seller’s eagerness to sell and the buyers eagerness to invest
- Whether the loan is a recourse or non-recourse loan
- Loan-specific circumstances (circumstances surrounding the loan in question)
The number of considerations may seem overwhelming, but may actually be good news for potential sellers. A note that is particularly strong on one or two aspects may overshadow its weaknesses in others.
Obviously, a buyer wants a note that is strong on all counts. That said, this is a balancing act, and a profitable exit strategy can be formulated for almost any loan, under the right circumstances.
If you are ready to get a quote for your promissory note or seller financed mortgage, contact us today for a free quote!