Sales of Mortgage Notes

[Mike L]

Is there anyone out there who's familiar with the sales of mortgage notes?

I have some interest in possibly doing a few hard money deals. However, I want to find out what options I have in regards to exit strategies for this type of business.

Thanks in advance.

[Jon Holdman]

It sounds like you want to originate hard money notes. Hard money notes are typically only for six months. I'm not sure that's enough time to season them sufficiently resell them without taking a significant hit. So, if you made a note at 15% interest for $100K and pocketed 2 points up front, I think you'd have to sell it for less than $100K (i.e., at a interest rate higher than 15%.)

As EIGco mentioned, if the borrower doesn't pay or doesn't pay off the note at the expected time, you take the property. Hopefully, they borrower plays nice and just hands it over in a deed in lieu. If not, you would have to go through the foreclosure process. As long as you're careful about your valuations and stay at a low LTV, you should be able to turn around and sell the property at a discount, cover your costs, and still make a nice profit.