Commercial Real Estate

Why Note Owners Can Be Motivated Sellers

54 Articles Written
why note holders sell mortgage notes

Whenever I talk with people about the concept of real estate-backed-notes as investment options, you can see the excitement in their eyes and it’s followed by one common question, “If note investing is so great, why would a note owner sell it to me for a discount?” That’s a great question! Often, in the world of buying real estate your best lead is a disgruntled landlord.   Not the case in note investing!  Most note owners are not disgruntled but they do have immediate and identifiable reasons for selling their notes:

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Why Mortgage Note Owners Sell their Notes

Cash is Running Tight: This is the most common epidemic right now in this economy! Often times note holders are real estate investors who can’t move a property for cash or with traditional financing. It’s after this period that they offer seller financing terms and move the property, but retain the note. In times of cash shortages, a note investor will be motivated enough to entertain wholesale cash offers on their note. Finding these motivated note owners is a matter of constant networking, and consistent marketing to those who hold notes. You may send a mailer out to note holders that doesn’t generate a note purchase immediately, but that mailer is probably not thrown out and once the need arrives for cash, you are the first point of contact.

Moving Up!: It’s not always a negative situation that leads to a motivated note holder offering you a nice purchase price for their note.  Sometimes the note holder wants to liquidate their note holdings for bigger acquisitions such as an apartment building, commercial real estate, or a self storage facility.  By liquidating some notes, you help them free up the capital they need to make that larger purchase. These contacts are great to keep because as their business grows, they will likely utilize notes again on their bigger projects.  Now, your portfolio is growing with them if you can acquire those larger notes.

Family Matters:  Holding notes for cash flow, in my opinion gives you a fantastic annuity of payments in retirement.  I have also found I am not the only one who thinks this way. Many in their golden retirement years tend to hold notes for the consistent cash flow. When they pass, their heirs are less likely to have that same appreciation for cash flow. Often, they would rather sell at a discount, divide the cash, and forget about the investment. This “Hassle” to them is an opportunity for you!   Work with attorneys and let them know about your note acquisition business. They will remember you when they run across clients who have inherited long term notes.

So, as you can see there are many reasons why a note holder would sell and many ways to find them. Have you found success finding motivated note holders? If so, please share your story, and as always your comments and feedback are appreciated.

Photo Courtesy: Images Money / WTCC Publishing Inc.

    Oliver Wright Esq.
    Replied almost 8 years ago
    Kevin, You nailed it. Discounted, cash flowing seller financed notes are, I think, the single best investment opportunity in real estate today, yielding risk adjusted returns that are pretty eye opening. As a private equity investor, GP/fiduciary and one of the larger bulk buyers of REO assets in the country–at least half of which I re-sell to owner occupants via seller financed CFDs (contract for deeds)–I can say from experience that the need to recapitalize investor LPs combined with the relative inefficiency in the note secondary note forces me to sell these notes–performing notes with various seasoning– at painfully significant discounts to par. I have close to $40M face value notes across my portfolios–hundreds upon hundreds them–that I am very motivated to sell, but simply do note have the time, staff or buyer’s list to move efficiently. Meanwhile, they are generating seven digit free cash flow annually, which I’m not gonna argue with, but I need to move them regardless, however much it pains me.
    Marc Faulkner
    Replied almost 8 years ago
    Right on the money Kevin! There are a ton of notes sellers out there but, if they are not “motivated note sellers” or not willing to sell at a discount, then there is no reason to even look at the deal. There is certainly no shortage of good paper trading hands at nice discounts in this market.