BiggerPockets

Can someone help me on clearing up if I can do note buying instead of double closing.

I am about to close on a property in VA. I have a buyer that wants the property and he is pre-approved for the loan. Instead of double closing, can I do owner financing, and sell the note to a note buyer before the closing date.

let me explain further1) Property is worth $380,000. Buy from Bank at $223,000. Repair is needed for 30k. Sell to end buyer at 300k and he can do his own repair or we can help me.

1) buyer will get a loan from me as owner financing
2) Buyer makes a down payment of 10% to me at 30k
3) the rest 270k is financed to a note to me
4) I sell my note $270k to a note buyer for 240k
5) WIth the note buyer buys the note for 240k, I can pay off the bank requested fund for 223k before the closing date?

Can I do this?

And, does anyone know a note buyer that is investor friendly.

The discount also seems inadequate to me. One of the note buyer posters recently mentioned seasoned, performing notes are trading at about 82 cents on the dollar. You have a totally unseasoned note here.

What rate are you thinking on this note? That will affect the discount, too.

I'm no expert on note buying, but I don't see how you would do this as you describe. You're essentially structuring this as a over 100% financing. Seems to me like the note buyer would have to assume the value you're paying the bank is the value of the property. After all, nothing has been done to it. So, they would want some "equity" in the deal. If they were willing to pay, say, 90% of the bank's price they would pay you about $201K in this case. That actually seems like about what you might expect for an unseasoned $270K note. You would need to pay the bank the difference, about $22K. That would still leave you with $8K out of the deal.

You still haven't mentioned the rate on your loan. That determines the payments, and the note buyer will use the payment and term, along with their desired yield to determine what they're willing to pay. A note with a 9% rate will have a lower discount than a note with a 6% rate.

Setting the risk concern aside, here's how the math works.

You have a $270K note at 6% with a 30 year term. Payments are $1619. Now say the note buyer wants a yield of 10%. They would figure the present value of a stream of 360 $1619 payments assuming a 10% yield. That gives a present value of $184,462.

If your note was at 9%, the payments would be $2172. The present value of that payment stream at 10% is $247,556. A significantly lower discount.

Thank you everyone. I have a better perspective now.

Yes the downstroke is good, however, note buyers won't even take a sniff. You need to sweeten the pot.