We are 8 months into the year, and I have looked at and reviewed hundreds of seller financed notes.Some of these notes have been sold and the sellers are happy to have their cash.
What about the notes that were not sold? Why not? What was the problem?
The problem was, is and continues to be that sellers appear to design these notes in order to sell their PROPERTY, NOT TO SELL THEIR NOTE ! The terms favor the buyer, not the seller, even though the seller intends to go out to the marketplace within 12 months and sell that note ! When the marketplace responds in a way the seller did not expect, he is disappointed, and decides not to sell.
I see the same costly mistakes over and over again. It's frustrating for me as much as it is for the seller. If a seller KNOWS he will eventually sell a note he is creating today, then he must pay attention to the following:
Costly Mistake #1
The seller does not check his buyers credit. Why not? This is a business transaction.You have a legal right to know whether your buyer has great credit or poor credit. Knowing this, you can now arrange the terms accordingly - make concessions for great credit, demand more for poor credit. Any note buyer will check credit very early in the process to help determine his pricing - sellers need to do the same.
Costly Mistake #2
The down payment is 3%-5% of the purchase price. Why? Our country has been in a downward real estate cycle. The absence of equity in a property is a huge negative that will make that property less attractive as collateral for the note. I have seen notes sold where the property had a 50% or 90% down payment - rare, perhaps, but it happens. Ask for the maximum down payment possible that will create equity.
Costly Mistake #3
The seller offers a 30 year mortgage. Why? Do you really want to wait 30 years to get your money back? Of course not. Well, guess what, neither does a note buyer. Everyone, in reality, wants to get their money back as quickly as possible. So, design the shortest possible time span that fits you and your buyer.
Costly Mistake #4
The note has a 5% interest rate. Why? If a bank won't provide the necessary financing, why should a seller offer the lowest interest rate possible? It makes no sense. As a seller, you are the bank. The interest rate must reflect the service you are providing to get the transaction done. Offer a rate that is commensurate with the overall risk in the particular situation.
All notes are sold at a discount The discount gets deeper when these 4 mistakes surface. There are others, but these 4 are prevalent. If you create a note and intend to sell that note in the next year or two, you want to make that note attractive to a buyer, and maximize the price you will receive. A business like approach to the transaction and design of the note's terms will increase the possibility of that occurring.
Hope this helps.
Regards,
Denny Stanz
California NoteBuyer LLC
760-245-5366
760-245-5367 fax
[email protected]
www.CaliforniaNoteBuyerLLC.com
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