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A Partial Purchase Note Offer allows the note seller/note holder of an existing cash flow instrument (seller carry-back note, structured settlement, etc) to sell a portion of the rights to collect future payments to a third-party buyer for a lump sum of cash.
This means that the seller can avoid the steeper discount associated with a full purchase buy-outs on the secondary mortgage market.
This occurs by assigning a portion of your remaining payments for a smaller lump sum amount, ensuring you future income down the road of life’s twists and turns.
It’s always a safer bet…
For example: Let’s say you have a seller financed mortgage note with a total owed balance of $121,200 at 7% interest payable in monthly installments of $1,162.95 with 210 months or 17.5 years remaining. If the seller where to sell 210 monthly payments of $1,162.95, this would be considered a full purchase buy-out.
But, if the seller/holder only sells 72 payments at $1,162.95 to a buyer, that would be considered a straight partial purchase. This means on the 73rd payment, that loan would revert back to the original seller/holder who could either hold the rest of the payments to maturity or assign some more payments to a buyer for cash. This option always gives the seller more money over the long run. This is due to the sharing of the risk factors between the seller and the buyer.
A partial purchase can also involve splitting the monthly payments received from the buyer between the investor and the seller, also known as a split partial. Using the same example of 210 payments of $1,162.95 each, an investor might concur to acquire $800 of each remaining payment leaving a remaining residual of $362.95 to the seller for the next 210 months. This is called a split-partial purchase.
The terms of a partial purchase are spelled out in the Partial Purchase Agreement. This important document outlines the servicing arrangement along with what happens in the event of an early payoff or default by the buyer. Competent legal counsel should review the partial purchase agreement to protect the rights of all parties involved in the transaction. Click here to see the Full Purchase Note Offer. Our team of note buyers is here to assist you, if you need help selling real estate notes.
A partial buyout means a note holder sells only a portion of their promissory note to an investor. Rather than selling the full note, you might purchase a portion like 48 or 60 monthly payments. This structure allows the note holder to keep long-term cash flow while still accessing a lump sum today.
A partial note refers to selling part of the payment stream tied to a mortgage or deed of trust. The original note remains intact, but the investor purchases rights to a certain number of payments or a portion of the balloon payment. Once those payments are made, the note reverts back to the original holder.
Note investing without buying the entire note reduces exposure. Partial note purchases allow investors to diversify portfolios, lower the risk of default, and maintain steady cash flow. Plus, partials often mitigate the impact of early payoffs or borrower issues compared to owning full notes outright.
When structuring a partial sale, the note holder and buyer outline terms in a purchase agreement. Details include how many payments the investor will collect, how balloon payments (if any) are handled, and how risks associated with early payoff or borrower default are shared. Thorough due diligence is critical to protect both sides.
While partial note purchase strategies lower some risks, they don’t eliminate them. The borrower might default, refinance early, or sell the property, impacting the investor’s expected returns. Choosing a strong loan servicing company, doing due diligence, and understanding the investment strategy can help reduce exposure to these risks.
Investors looking to diversify their investment portfolio often turn to partial notes because they allow more flexibility. Instead of committing to long-term full note ownership, a note investor purchases only part of the income stream. This creates a stream of income while keeping overall risk aligned with their goals and risk tolerance.
Buying the entire note means taking on full borrower risk, property risk, and servicing responsibilities. With a partial purchase, an investor can limit their involvement to just a portion of the note, enjoy proportional returns, and exit sooner than full note buyers typically can.
A split partial is when a note investor and the original note holder share each monthly payment. For example, an investor might purchase $800 out of each $1,162.95 installment, while the seller keeps $362.95. This way, both parties maintain cash flow throughout the payment schedule.
Thorough due diligence gives investors a clear understanding of borrower reliability, the mortgage or deed of trust status, property condition, and payment history. Skipping due diligence can expose both buyers and sellers to avoidable losses, especially when aiming to purchase the next wave of payments or deal with early payoffs.
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