Many people who sell a property and carryback the note usually operate in a vacuum. They want to cash out, they have a buyer who can’t get conventional financing, so they agree to “carryback” in order to sell the property. It’s virgin territory for most people, sometimes scary and intimidating.
Since the goal in selling the property was to cash out, and the seller is now receiving monthly payments, the objective has not been met. Sometimes, however, the seller actually gets accustomed to receiving those monthly payments and likes the cash flow.
But many times, there is a nagging want or need for cash. And many times, a seller can be disappointed and satisfied at the same time when talking to a notebuyer. Here’s what I mean:
Let’s say you sold a property. You took back a $100,000 note @7% for 20 years. The monthly payment is $775.30. You have received 10 timely payments, the current balance is $98,029.30. You have a nice property, good equity, and a dependable payor. You are talking to a notebuyer who offers to buy your note for $79, 242. This represents about 81% of the current balance. The offer is a good one, but you don’t like the discount.
You complain to the notebuyer and mention that you like the income, but you really need $30,000. He then offers to buy the next 50 payments from the note for a little under $31,000. You assign the Note and Deed of Trust to him for the next 50 monthly payments of $775.30. Afterwards, the note and deed revert to you and you now receive the remaining 180 monthly payments of $775.30.
What happened here? If it turns out you really like the note and the income from it, but have a current need for a limited amount of cash, you used your well structured, performing note and sold a part of it to get the cash you need now. After the notebuyer gets his share, you get to enjoy the income again. You satisfied your need to get cash today and then enjoy the “backend” of the remaining payments.
When you need cash, you will typically look at the assets you own that may be a source for that cash. If you happen to own a seller carryback, you may not even be aware that your note can be sold. And you surely may not be aware that you can sell only a stream of payments and then get the note back again.
Business is about providing a service or solving a problem. Those of us in the note business are in the problem solving business. Sometimes, in your mind, you created a problem for yourself when you agreed to carryback a note. That same problem, though, may be a lifesaver in helping you when you face a cash crunch in your life.
