Let’s say you are carrying a note for the first time. Payments are coming in, it’s working well. You just learned that a market exists where professional note investors buy seller carry notes, just like the one you hold. You also learn that notes are bought at a discount, which does not make you happy but you are intrigued. Turns out you are in need of some cash. So, if you talk to one of these folks, how should you prepare? What are they looking for?
Remember that like any business, note buyers will have their decisions driven by their experience and preferences. Most of them will keep their notes till term. So if you have held your note for a few months or maybe a year, you will be talking to someone who is looking at the long term, and the risks associated with that decision. Some may ask you a few key questions then allow their due diligence to drive them. Others may ask many and detailed questions. Everyone is different. But, let me highlight some key areas you should be prepared to discuss:
The Property
- When did you buy the property?
- Do you live in the home or is it an investment property?
- How much did you pay for the home?
- If you made renovations, can you provide receipts confirming the expense?
- How would you describe the neighborhood?
- Are property taxes and hazard insurance payments current?
The Buyer
- How did you find your buyer?
- How much do you know about him?
- What does he do for a living? How long?
- What is his credit history?
- Would he qualify for a conventional mortgage? If Yes, why seller carry? If No, why?
- What kind of car does he drive?
- Who lives in the property with him? What is their relationship?
The Terms
- Is the sales price equal to, greater than or less than market value at the time of the sale? If more or less, why?
- If the down payment is small, why were you willing to accept it?
- How does the note interest rate compare to current mortgage rates?
- Did you try to negotiate the shortest term possible?
- Was the note drafted by an attorney or your local Title Company?
- If your note has a balloon payment, why? How confident are you that your buyer will pay the balloon when due? If he can’t, how will you handle that situation?
- Do you collect the payments or do you use a servicing company?
Remember, a note buyer is making a decision on deploying cash – where and how much. You may be asked a few questions as above or he may ask you many more, detailed questions. Be prepared to discuss your situation in an honest, professional and non-judgmental manner.
Hope this helps, feel free to contact me with your questions.
