Ever wonder if those real estate informercials actually do work? Would you like to learn how to sell your seller financed mortgage note and how to construct a note to resell.  I prepared this guide to give some basic informative tips on this subject, its a great beginning source of information and should be used just as only basic information.  Real estate is a good and wise investment only if investment gives a good profit.  The way to ensure a profit is by careful analysis and educating yourself by researching the property of interest.  Secondly, is knowing the best time to invest, right now nationally it's a buyers market because sales are lagging nationally.  If you are a seller it would be best to hold on to the property by renting it until real estate values increase again .

  If you have tried selling your property with a realtor or by yourself and have had no offers, there is a third option which many sellers are now opting for in selling their property quicker .  Many sellers and investors are offering the buyer financing on the property instead of the buyer qualifying for a mortgage or bank loan. It is a quicker way of selling the property and you have opened the potential buyer market for your property. 

In addition, with this option you have allowed a buyer who may not have perfect credit to buy or invest in your property so you as the Seller/financer can set the interest rate and the terms. Interest rates  for these seller financed notes are usually between 8-12% 

 Many sellers might be leary of financing a mortgage for the buyer because they do not know how to go about foreclosing on the property if the buyer  does not meet mortgage obligation and might be afraid of the costs of foreclosing.  The answer to this problem should be seen as a positive,because  the seller as a mortgagor will always be the first person to be paid on this note and if the buyer doesn't meet obligation, it is your right as the Seller to foreclose on property.  The seller will keep all monies that the buyer paid on the note plus keep the property in the case of foreclosure and be able to resell on the market again.  There are many real estate attorneys who will help with foreclosure process and fees can range in the 1500-2500 range. 

Many sellers would prefer to just sell their property and get their full asking price in a lump sum.  In the event that the property doesn't sell quickly and the Seller chooses to finance the property for the buyer, there is an option available for the Seller.  The seller of the property can find an investor who is willing to purchase his note at a slight discount.  There are some investors who will purchase the note during the same time of the closing and this is called a simultaneous closing. 

The seller of the property creates a note on the property.  The seller becomes the mortgagor on the property and the buyer has to pay his/her mortgage directly to the seller.  The seller in turn must keep very accurate records such as a payment record and mortgage balance in case, they decide they want to resell their note to an investor. 

What are the elements of a good note?

 A good note should contain the following:

1. The date of transaction

2. The start date for the 1st mortgage note payment

3. The names and addresses of both the buyer and the seller.

4. The address of the property or  lot being purchased by buyer.

5. The terms of the note or mortgage for example 10 or 20 year note.

6. The interest rate being applied to the note for example 10%

7. The monthly mortgage payment on note

8. The down payment amount placed on the note. 

9. It should be notarized and both the buyer and seller should have a copy. 

A good note should have all of these elements and it should be written in a clear and concise manner so that all parties understand completely the terms. 

If the seller plans to sell the note to an investor later, it should have all of these elements. Most notes are poorly written and the terms are unclear usually these notes are unsellable.  Most investors will not purchase a note that they consider  too risky. 

Now, you know the basics to creating a good note for your records, now the Seller should concentrate on creating a sellable note. 

The seller of the property should create a note which will make it very marketable to an investor.  An investor wants maximum return on their investment and minimal risk, so when creating the note the Seller should keep this in mind. 

For example, The seller should require a down payment on the note because most investors prefer these types of notes. The buyer will most likely keep their investment because they have placed a large down payment on the property and will not want too lose their money .  

 The note should always be over 20,000 notes under this amount are not marketable or even profitable.

 The terms of the note should be clear and the math should be accurate.  For example, the monthly payment should be calculated  so that the investor knows how much is going towards interest and how much towards the principal.  The math should all add up correctly. 

The terms of the note should be for the shortest amount of time for example, terms should be about 10 years or 20 years. 

Balloon notes are harder to resell because most Investors fear that the buyer can't find financing within that short amount of time.  Most balloons are three- five years.

The note should have the best interest rates which normally means the highest interest rates.  These notes are more marketable and should not be more than 12%

Land contracts and lots are not as marketable as properties with a home and land included.  Land contracts are usually heavily discounted because it has to be developed and built upon.  The seller should really consider not selling their land note if they can hold on to it, there would be a loss if they sold at discount. 

Mobile homes are marketable only if it includes land.  If it doesn't include land it is harder to sell.  This applies to commercial and business notes, if selling a business note it should always include property or land.  Rarely, will an investor purchase a note just on the business alone.

The note should be a seasoned note this means that it should be a least 6 months to a year old.  The investors purchase notes which have shown profit potential.  If the seller can demonstrate that the buyer has paid consistently and in timely manner.  It is considered a good note.

If you plan to market your mortgage note consider using a broker who knows which investors will pay the most for your note.  This is a small community and if you shop around for quotes it will devalue your mortgage note.  Investors know how much that note is worth today, they do not pay for what it will be worth in the future.

I had one client who had approached me to sell her mortgage note, she had apparently been trying to sell her note for about two months before.  I tried with the investor I work with and he gave a quote which she did not consider high enough, so I tried with another mortgage group and they had already quoted her before. 

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