Selling A Note...(m)
I finally have a kind of understanding how selling notes work but what I don't understand is how it can work if there is a 1st mortgage on the property. Here's what I mean:
There is a 229,000 mortgage on the property(mine)
I'm going to L/O the property for 269,900 asking for at least 10% down. Property is worth 275,000. I would like the sell either the whole note or half of it. How does that affect the current mortgage? I know the loan would be paid off from proceeds but what happens if I want to sell half the note? Is that doable? How can I calculate how much I can expect to get from selling the whole note? I mean after the current mortgage is paid off?
Any help in clarification would be greatly appreciated
quinn
Note investors will want the underlying mortgage paid off when they purchase the note even if the mortgage is assumable. If you sale the property and take back a note for $243K, figure a note buyer will want to discount a "perfectly written" note by $2 to $5K to compenste for their time and expense of due dillegence. Unless your property is a SFR, figure the note will be discounted to the investors LTV requirements for the property type.
Assuming the equity requirements are met, If the note terms are not congruent with the risks associated with the property type and buyer strength, the discounted note value could exceed the outstanding mortgage balance leaving the note unsaleable.
I totally agree with the last post. If you take care of all of these things then you can sell half of your note and at the end of agreed upon period the note will convert back to you. [ Edited by commercialking on Date 01/31/2005 ]
Quinn,
I see a couple problems with your proposed deal. You will not receive a mortgage note on a L/O. Only a lease and an option. Also getting 10% for option consideration is almost unheard of. I usually try to get 3-5%.
That being said, I would suggest you sell on a land contract or contract for deed, in which 10% or more downpayment is rather common.
I would be more than happy to give you a quote on this note if you go that route. Just my opinion Good Luck!
JD
8-) Quinn, Some good responses already, I just wanted to through out an example of what you could do here.
Sell your property on a CFD or land contract for the 270k and try to get 20k down. You carry that 250k note, which is indeed a secong wrapped aroung the existing financing of 229k.
Write the note as follows:
250,000
8% INTEREST
240 MONTHS
PMT. = 2,091.10
Hopefully the buyer can affors this payment.
VERY IMPORTANT:
Do a credit check on the buyer and have a copy of the credit report to present to the note buyer. Amazing how many sellers that carry paper, DO NOT do this!
If credit is above 620 mid score and you season the note a bit, you should be able to get about 93 cents on the dollar, net offer at close. That would be about 233k or maybe a bit better, depending.
You could pay off the first, and have that debt taken away and put about 5 k in your pocket and be done with it.
If you really do not need to cash out, maybe season the loan a bit and collect the cash flow and then sell it after 12 months have been paid.
One more thing also. You might want to put a 5 year balloon in there as that would increase the value of the note as the repayment would be quicker to the note holder/note buyer.
To sell half the note would not be doable, as the buyer would be in second position. If you had more equity, this would be good, but you do not, so can not do it.
You get 20k down
3 payments of 2k = 6k
5 k cash at close after the note holder buys the note
TOTAL OF 31K out of your 41k equity and you get the debt relief and get it all within 3 months. Not to bad, but only you can decide that.
Hope this helps and the best to you!
[addsig]