How much is my Note worth?

Question

Back in April I sold a building that I owned. The purchase price was $650,000 the buyer put $250,000 down. I did seller financing for 12%  plus a finance charge of 8 points of the purchase price which we also financed and wrapped into the deed. The principal balance is $452,000 amortized for 30 years 10 year balloon and the first 3 years are interest only payments of $4,520 which have all been paid on time with no issues. The note was drafted by an experienced attorney and is secured  by  a  1st deed of trust. I have gotten a bunch of letters and calls from people wanting to buy the note and I'm not desperate to sell because I'm making good money on holding the note, but I am curious what a good offer would look like. I would want to sell the whole note if I was to part with it. I would not be I interested in selling only part of the note. Any insight is greatly appreciated.

Christopher Winkler · Answer

It sounds like a good note, w/o seeing the terms of both docs. It should sell at a slight discount to UPB, most likely somewhere in the 90% range, and that's all based on what someone will pay as they typically are looking for a yield. Depending on who they are it could be low or high% of the range. Unless you need the cash for something else, you will have a taxable event, and you might want to consider either a 1031 exchange regarding the tax issue, or hypothecating it against some other investment.

Doug Smith · Answer

If the loan is performing, it sounds as if you are getting a strong yield at 12%, but you have to ask yourself what yield you would receive on the funds that you would receive if you sold the note. It's primarily about "opportunity cost". Can you deploy the capital for more than your current yield. One thing to keep in mind is the taxation hit you will take from the sale. The 8 points you grabbed up front are fully earned when the deal is signed, but it is amortized out over the loan term for accounting purposes. Once you sell it, however, those earnings will be charged in the period you sell it in spiking your yield, but perhaps causing you a tax hit. One other thing to consider is that most of the people wanting to buy your note and going to want to discount it. Another consideration is that, at a 12% note rate, the seller is probably going to refinance it as soon as possible to bring that rate down meaning that selling at a discount might be a poor move. If you feel that your payment stream will continue without an issue, I would strongly suggest holding on to it unless you get an obscenely great offer. Good luck!