Commercial Real Estate

Use This One Technique to Ensure Yourself a Good Note Investment

54 Articles Written

Two of the most common questions I get from prospective note investors is how do I find notes in the first place, and when I find them, how do I know it’s a good note? Finding a note can be just like finding a good property. You can go the traditional route of direct mail, talking to brokers or placing ads or you can use this one technique to create the best note possible for yourself. All you will need is an active real estate investor and a plan.

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Where to Find Note Deals

We see the ads all the time, “seller will carry”, “Owner Financing Available”, and “Buy on contract” and we as astute real estate investors know we can buy that particular contract on terms, what we also need to consider is these sellers are your perfect candidate to help you construct the perfect note investment. These sellers are willing to offer terms for a multitude of reasons, one of which can be because they have successfully done it before, and while they have done it before, it doesn’t necessarily mean they want to collect on the note over the life of the contract. Most often, they are active real estate investors that do not want their cash tied up into a long term contract, and this is where you the astute note investor step in.

How to Get That Note Deal

These sellers are used to getting bombarded with emails about how little down they will take for the property, or would they consider an option, or whatever else new guru method they learned about that week. What these sellers almost never get is an email from a note investor asking if they would be willing to work together on the deal to take the note off the investors hand at closing. You are solving a problem for the seller, and helping in the creation of a note that works for you. When you find a willing seller, now comes the negotiation, as together you develop the acceptable criteria to provide financing to a prospective buyer on the property. Together you determine the interest rate, the length of the note, the balloon payment, and the acceptable credit of the buyer, in addition to how much of a down payment is acceptable, who will keep that down payment, and at what discount price will the seller provide the note to you at.

I believe the best way to make these types of relationships work is to be transparent with each other. If you both go into the deal knowing what you both are going to get out of it, you can start to build a note producing machine. Make sure these details are spelled out from the beginning, to avoid any hard feelings.

Learning how to master this technique can provide to you an unlimited source of notes that you are looking for once you build the right relationships.

Photo Courtesy: Andrew Bain

    Steve Johnson
    Replied over 6 years ago
    Kevin, Nice article on how to find the notes. I’m curious, how to you make profit in this type of situation? Are you providing a service, the service of constructing the note, for a fee? Or are you splitting the profits in some way? Many of the contract for deeds or seller financing options I’m finding are people who are not investors. They usually have no idea what they are doing but have heard of some form of creative financing.