Seller Originated Loan Scenario

[Bret N.]

If a person owns a property outright for say, 100k FMV, could they create a note on this for say 50k @12 % for guaranteed 5 years without prepayment and sale it. Also, is there a way to "wholesale or flip this note" by finding someone who will buy it @ a lower rate and then you keep the difference?

I hope I this makes sense? LOL

[Bob E.]

@Bret N.  I assume you are talking about if you own a free and clear property creating and selling a note secured by it as a way to get cash out of the property?  This is basically private money lending.

Your idea seems like this would work but the challenge you are likely to have is that most note buyers are going to want to see some seasoning unless you have a personal relationship with them.

Those objections might be overcome by creating a 5 year note and selling just the first two years WITH an option for the lender to buy the three remaining years at the back end. You could potentially change the the terms to 1/4 or 2/7 but the general idea is to get the investor a low initial LTV and then, once they see a solid pay history, to get them to commit the balance of the funds. You could try and require it in the contract that if all payments are made on time that they will buy the balance but some lenders might balk at a requirement, an option seems like an easier sell. I think if you make your payments most would renew. I also think you could find private money to buy this for less then a 14% yield.

Good question, it made me think.