Mortgage Note Buyer

Brokering Notes in The Note Business is a Lot Like Baseball

Bling, bling, bling the phone rings. "This is Mr. Joe Note Holder looking to sell my note."

Me-"HELLO-this is Master Broker-thanks for calling-please tell me about your note.......... (now is the time to listen)

A) Always have a blank Note Intake/Quote Request Form handy.

B) Ask Joe for permission to ask a few questions regarding the note.

#1. "How much money did the buyer/borrower put down when he bought the property Joe?"

NOTE-If less than 10% strike one!

#2. "Did you check the borrowers credit and if so-what was the score?"

NOTE-If they did not check the score-the score is probably not great or at least there is some doubt. If this is the case or the score is less then 620, strike 2.

#3. "What is the property worth and how much are you looking for today?"

NOTE: If they want any more than 80% of the current balance-you are going to have a hard time explaining the Time Value of Money. Unless the seller is realistic about pricing, strike 3 and they are out!

Questions Regarding Seller Financing

With Jayden's Nudge, I am posting this here:

Marc,

I just read a couple of your articles regarding seller financing on BP. Very informative, I greatly appreciate the information.

I am researching the possibility of buying townhouses in the Minneapolis suburbs (Lakeville/Farmington) all cash and financing them to buyers on an 80-10-10 setup as your article described. Currently, townhouses are selling at deep discounts because they are difficult to finance with over 50% of the units being rentals and local banks being afraid of them after losing their shirts the last couple of years. I can pick up a townhouse for $70k all-cash that could sell for over $130k financed. My question is, what do note buyers need to see for the primary note to be attractive and easily saleable?

If I have a note at $104k, 30 yr. fixed, 6.5% interest on a 130k appraised townhouse, what would that be worth to a note buyer? Could it be structured differently for more value?

Do note buyers have any issues with a note on a townhouse? I know local banks won't carry them. Any help would be appreciated.

Thanks,
-Jaden

Reply:

Jaden,
Thanks so much for your kind words. I would like to work with you on these deals. Are you going to be selling these to buyers that will be living in them as their primary residence?
These would be my suggestions:
1. Sell to buyers that will live in the property.
2. Get at least 10% down, more would be better.
3. Close with a 3rd party title company and get a lenders insurance policy from them. You could pass this cost on to the buyers.
4. Make sure you are listed as loss payee and additional insured on the insurance policy.
5. Have a professional servicing company collect your payments, keep the books on these and do the government reporting and noticed required.
6. Plan on keeping the 2nds. for long term cash flow.
7. Charge a little higher rate like 8 to 10%. You can demand a premium because the financing is not available elsewhere as long as there is a demand for the units at affordable monthly payments.
8. You will be directly competing with the rentals. How much do these rent for on a monthly basis? Your payments have to be less pr month for your buyers than what the same units would cost to rent. In order to move these I believe your buyers payments will need to be less than rent including the taxes and insurance. If you can achieve this you will be able to quickly move all of these units to folks that are currently renting the units right next door!!!
Some questions I have would be why would you want to sell these notes once you create them? Can you afford to hang in these deals for a while? The longer you can possibly hang in there the less the discount your notes will take.
The note market, investors tastes and what can and can not be done as far as selling notes is changing with the wind right now. If you can get these rolling and performing, there should be no problem in finding investors that will pay a fair price for your notes.
I am located in Kalamazoo, Mi. and enjoy networking with real estate and financial professionals nationwide. If there is anything I can do to work directly with you on these projects, I would welcome the chance. My regular e-mail is: michiganmoney@hotmail.com

Happy Easter

Sincerely

Marc Faulkner
Creative Financial Solutions
(269)353-9238 Office
(269)806-8802 Cell
(866)364-1457 fax
www.creativefundingservice.com
We offer Fast Cash for first position land contracts, mortgages, trust deeds, business notes, structured settlements, inheritances and lottery winnings Nation wide!!! Quick service from quote to funding since 1999.
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Get Greedy or Get the Note Deal?

Last Friday I got a call that instantly became a call to action! The caller happened to be local, which is rare since we are not currently targeting local notes in our advertising. I was immediately interested because the property happened to be less than 10 miles from my location in a neighborhood I know well. I pulled out a Note Intake Sheet and started asking the seller my usual questions regarding the Land Contract.

My first question is almost always, “is this your note, or are you helping someone with the sale?” In this case the gentleman was helping his mother because she is elderly and in assisted living. As it turns out, his mother has to sell the note because the assisted living facility has income requirements and she does not qualify because of her current income level. Now I am thinking to myself, here is a situation where the caller has to sell the note. I know for certain that I am going to get the transaction because I am local. I let the caller know I am close by and will give him an instant quote.

I go on asking questions about the sale price, down payment, term, interest rate etc… I find out that there was a balloon due a year ago and the note holder has let it slide because the buyer has not been able to secure any conventional financing. This note is technically in default and is something most note buyers would shy away from. At this time I am thinking-we’ll just have the two parties draft up a formal extension and cure the default. I realize that the note holders do not want the property back. While I am on the phone I am checking values and conclude that the home buyer is at about the breakeven point (not under water but, no equity) and that this is why the buyer can’t find any financing. I ask the seller why they haven’t taken the property back and then I shut up and listened.

Sale Price: $90,000 Down Payment: $4,500

Note Amount: $85,500 Rate: 8%

Term: 360 months with a 60 month balloon / since passed Payment: $627.38

Number of Payments Made: 77

Number of Payments Remaining: 283

Remaining Balance: $79,750.47

At this point the seller tells me about the buyer and that all of his payments have been paid like clockwork. He also tells me about the property, it is owner occupied home with a small rental unit in back that the buyer is renting out for $450 a month as a supplement to his income! This was not taken into account when the home was appraised during the buyers attempt to secure conventional financing. From looking at the appraisal, the appraiser may have ended up talking to the renter in the process and assumed this was just one unit.

Now the house payment is only $627.38 a month and as it turns out, the payer has a renter helping him pay $450 of this. What a deal for the home owner! Like I said, I know the area and I know you can’t rent anything this nice for $627 a month let alone only $177 after you take the rent collected each month into consideration. This buyer would be crazy to leave this situation….

I have to say by now I am thinking I am going to get myself that I can probably get myself a great deal on this note. Here we have a situation where the seller has to sell and they are aware that there are some underlying problems due to the lack of real equity on the buyer’s part. This could be a nice one to buy and hold for yield if I can steal it! I am almost ready to move in for the kill with my offer when I start to have second thoughts…

The note sellers are in a situation and they are local. Why should I get greedy here instead of trying to get the note holder as much as possible? Maybe they have other connections at the assisted living facility that have notes for sale? Maybe a little good will here could go a long way?

Instead of quoting what would be a killer deal for me personally, I quickly calculate what I know will be a competitive offer and throw it out there. The seller comes back saying, “I just got another quote for $2,000 higher than that Marc and called you because you are local.” I tell him we will match the offer and close with a local title company. I start asking questions (assuming the sale) so that I have all the information to put together a Purchase Agreement and let him know I will be e-mailing it to him within the hour. The next morning (Sat.) he called with all the usual questions about timing, closing costs, etc. I answered all of his questions while he was sitting there with his brothers and sister. He thanked me and told me he was on his way to see his mother and have here sign the Agreement.

Now if I was to have let greed get the best of me in this situation, I would have certainly alienated these sellers as I failed to ask them if they has any other offers or what they were looking for before I made them my offer. A rookie mistake! The good news was that I took my time to find out all I could about the note and that I built a rapport with the sellers. It’s not often you get a second chance in this business and this seller gave me one. I earned it, by letting him know I cared and know what I am talking about in the process of collecting his information. We won’t make much money off of this note but, you can bet that I will be letting the assisted living facility know all about our services once we have funded the transaction!

Have a note you would like to sell? www.creativefundingservice.com

An Old Mobile Home Note or Money Tree in Disguise?

I got a call from one of my favorite note brokers last month regarding a mobile home note secured by a mobile home in a park / rented lot. The note was created by a dealer and he was in need of capital. The broker gave me the details of the notes structure and information on the payer and mentioned that he has had a rough go of finding any buyers for note because the land was not part of the security. In by quick once over of the note I told him that I thought we could come up with something that would work for all parties involved. He faxed me a copy of the note and I went to work getting my offer together.

The terms of the note:

Sale Price: $30,717        Down Payment: $6,000
Note Amount: $27,717   Interest Rate: 12%
Term: 188 Months          Payment: $401.16
Date of First Payment: 04-28-2010
Remaining Balance: $23,338.88
Number of Payments Made: 9
Number of Payments Remaining: 88

I liked the fact that the buyer had put down a respectable down payment. I also found out that the payer was gainfully employed close by and had made some updates to the home. The home was built in 1999 and in good shape. It looked like the mobile home was not over sold just because the owner was willing to take back a note. The broker had talked to the seller and got the point across that there are few buyers for mobile home paper and that he would definitely have to take a good sized discount if he really wanted to sell. The seller’s response was that he totally understood. I was getting the feeling like I was on to a deal here somewhere!

I promised the note broker that I would pay him $1,000, if and when we close the deal, if he would allow me to talk directly with the seller. I negotiated a purchase price from the seller of: $14,000 knowing there would be about $1,000 in closing costs. I figured I would have about $16,000 into a note with a principle balance of about: $23,338.

So for $16,000 I would have the rights to collect the next 88 payments or $401.16. The yield on this investment would be about 25.3% or good enough in most books. The total return in 88 months assuming everything goes as planned would be: $35,302.08!!!

Just as I was thinking of moving in for the kill I got a call from a friend of mine looking to put some money to work at better than market returns. Now I have worked with this investor in the past, and had a good feeling the types of returns he was talking about. I told him his timing was impeccable because I had just gotten in a quality note that could be had at a good price. As it turns out the mobile home was located less than a mile from where my friend went to elementary school and he was familiar with the area. He did his due diligence and we agreed to let him buy the note for $17,500 plus closing costs.

Now my friend has about $18,500 into a note that has a balance of about: $23,338. Since it was getting close to the end of the month the note seller ended up collecting another payment so now there were only 87 payments left of $401.16. In my book this equates to about a 19.9% yield or more than good enough.

We closed the deal and everyone was happy. My associate that bought the note was able to park his money where he was confident that he would get a good return. The note broker was happy because I was able to put together a transaction that he has almost given up on. He should have called me first! The mobile home dealer / note seller was happy because he got to pull his money out that was tied up into the note. I ended up happy because after I paid the note broker his $1,000, I got to walk away with the difference (you do the math) and move on to the next deal.

It’s been about a month since we closed this transaction, and today the note broker called with the details of another note that the dealer has available. Creating these types of relationships is what makes our business work and it is always easier to do business with repeats and referrals. I hope this one turns out as good as the last one did and that I can come back and finish the story. Until then……

A Couple of Quick Tips for Owner Financing Today

1. Sell to buyers that will live in the property.

2. Get at least 10% down, more would be better.

3. Close with a 3rd party title company and get a lenders insurance policy from them. You could pass this cost on to the buyers.

4. Make sure you are listed as loss payee and additional insured on the insurance policy.

5. Have a professional servicing company collect your payments, keep the books on these and do the government reporting and noticed required. We are afillaited with a company that also reports to the bureaus and strives to get our buyers financed conventionally whenever possible.

6. Plan on keeping the 2nds. for long term cash flow.

7. Charge a little higher rate than the going rates on conventional mortgages. You can demand a premium because the financing is not available elsewhere as long as there is a demand for the units at affordable monthly payments.

8. You are competing with the local renatal market when you are using seller financing as a way to move properties. Keep your buyers payments (including taxes and insurance) at less than what they could rent a compatatible property for.

Another Quality Link to Mobile Home Content

Happy Friday everyone. I hope you have a great weekend. I like to network with others in the manufactured housing industry. Here is a link to a quality site on the subject: http://www.mhweekly.com/

Live!

Marc Faulkner

www.mfghomeinfo.com

Wholesale Mobile Homes!!!!!