A bank that lends against promissory notes...

5 Replies

I've used one particular local bank (San Antonio, TX area) to "leverage"  real estate notes I've created.  But during this weird time, they have gone radio silent on me.  This is making me realize I've put a little too much faith in this one institution. 

This is a huge part of my owner finance strategy. Basically it's a BRRRR strategy but instead of the second "R" (rent), I sell the property owner finance. I then take the promissory note (all created by an RMLO, lawyers, and closed at a title company with insurance) and borrow against it to pay back the money used to create the note (Purchase and rehab costs). P&I cover more than the 10 yr loan cost. So I create a little cash flow for 10 years, and then the last 20 years of the mortgage are all gravy for me. Basically an infinite return and a cash flowing property (for 30 years) that I don't have to manage.

Typically they lend between 70-80% of the value of the note.  

Does anyone know of a bank that would consider lending with a note as the collateral? 

That's gotta be one of the smartest plans I've ever heard of... All the benefits of a cashflowing rental without having to worry about maintenance or bad tenants.

Originally posted by @Stone Saathoff :

That's gotta be one of the smartest plans I've ever heard of... All the benefits of a cashflowing rental without having to worry about maintenance or bad tenants.

this was a main strategy i had in the 90s when i was in the Land and Timber business.  we would buy timber land log it.. sell land to someone who wanted to build on contract they needed time to get a take out loan. so we did say 2 year note 3 year note that kind of thing.

then my bank would advance me 50% on the note..   So for you to get 70% thats a SWEET heart deal.. LOL.. and they probably realized that its not enough equity in todays market.  

Ours were hypothications of the note.

I suspect this is a very tough thing to get without great relationships with your banker.. IE they trust YOU.. 

 

PS this product could do well in the private sector but private folks are going to want 12 to 20% apr returns.. so you would be taking a big haircut to sell a partial.

@Chris Seveney   Chris is an expert in this area maybe you guys could have a chat.

@Collin Corrinton

Outside of times like we are going through right now, on the commercial side there are banks that would hypothecate a note but for owner occupied that is extremely rare due and if you could find a lender it would need to be specific to a certain geographic area. I have yet to find a lender who would lend on an owner occupied owner financed note.

I do something very similar with my performing loans in my own portfolio where some call it a collateral assignment or selling a partial. The major difference is the cost of $ is greater as banks may lend at 4-6% and investors want more than that. During times like this if you have assets with good borrowers with long pay histories and substantial equity I believe it could be the safest place to invest and many people would be happy in 6-8% when the market is so volatile.

@Stone Saathoff .  Thank you!  Yes, we do it quite a bit.  It has its upsides and downsides like anything else.  The big thing is the amortization schedule.  If they sell I typically get all my cash invested back too.  A downside is I lose control of the property.  Upside - no tenants to deal with.  Downside - Not as many tax advantages.  It's just a great strategy to have in your arsenal.