How Are You Pricing or Valuing Owner-Financed Notes Today?

Question

Hi everyone,

I’ve been seeing more owner-financed and private mortgage notes being created lately, especially with higher interest rates and tighter bank lending. From what I’ve observed, note values seem to vary a lot depending on things like payment history, borrower credit, property type, and remaining term.

For those of you who’ve sold or evaluated notes, what factors have mattered most in determining value or discounts?
Also curious how much seasoning really impacts pricing in today’s market.

Looking forward to hearing different perspectives.

Spencer Hunt · Answer

The value of an owner-financed note mostly comes down to risk. Buyers look closely at the borrower's credit, the loan-to-value ration, the type of property, and how long the borrower has been making payments on time. Loan-to-value and borrower credit are usually the biggest factors but payment history can make a difference too.

Notes with 12-24 months of clean payments usually get better pricing than newly created notes. This is because they have less of a risk of defaulting early. All that said, a good history of timely payments won't fully offset a high loan-to-value ratio or weak borrower credit. The stronger the collateral and payment history, the smaller the discount tends to be.

Chris Seveney · Answer

We are being very keen on how they are underwritten. If there is no appraisal done at time of origination it's an automatic no. that's been the biggest hurdle we have seen as many do not get appraisals and back number into fit a specific situation vs valuing the property