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I have a buyer and am considering offering financing as follows:

Sales price $43,900
$4900 down
$39,000 financed
10 year term and amortization
11.5% interest
Principal and interest:  $548.32
Escrow taxes and insurance
Buyer FICO @ 600 
 
What's this note worth?  Any suggestions?

Marc Faulkner · Answer

Thanks for the kind words!  I have been slacking on my posting because I have been super busy putting deals together for a change and, have not had as much time to keep my eyes on these boards as I did this Winter. 
The advice I gave you comes from the heart and is exactly what I do once I create a note.  I look to partner with private note buyers looking for mail box money at a decent, secure return.  This advice actually cuts us out of the loop but, private investors are always my first plan of attach when it comes to selling notes because we get to make the rules vs. working with institutions that make the rules when they buy.  The Golden Rule of Real Estate is: "He who has the GOLD-makes the rules!"   It is much easier to find an Aunt or Uncle that has some money tied up in useless investments and show them how they can actually get a nice secured return!!

Marc Faulkner · Answer

Having the ability to keep these type of notes is even better!!!!  I can help you in setting up a loan servicing account on a direct debit system, that will report your buyers timely payments to the credit bureaus and actually making it possible for them to get a refinance at full face assuming they pay well for a while!!!

Marc Faulkner · Answer

I would escrow for taxes and insurance and plug in a loan servicing company to collect and do year end reporting on this transaction. Without loan servicing in place the escrow is a pain and a lot of work for a small note.  
As for what the note is worth, your best bet is to sell it to a friend or relative that would like a good return on money they have sitting around right now that is not making as much as what your note has to offer.  You might find someone willing to pay the full face if you play your cards right.  Please note that I am not saying you can find a broker to give you this much but, there are plenty of folks with cash sitting around right now that are not making any kind of return.  If you could find someone willing to accept an 8% return you could keep the other 3.5% as a management fee!  Going through a broker or institutional buyer is likely to bring you 70 cents on the dollar for a green note with 3 to 6 payments made.  If that is a profitable number for you, or close, give me a call..........

Jon Klaus · Answer

Thanks much Marc.  I have no problem letting it season for a while or even keeping it.

Good to have you back posting again!

Rushabh Sheth · Answer

I have invested in hard money lending in the past and the terms I got were usually for 12% to 14% with 3-4 points AND most importantly, a maximum 1-year term with option to extend.

Since the note has a 10-year term, you should discount this note by say, 10% to 20% to adjust for the following long-term factors:

1. interest rate risk
2. credit risk
3. housing price risk

If the note term was cut to 5 years then the discounting would be much less, obviously.  Ideally, you want to buy the note at face value only with a 1-year term or sometimes 2-year terms, depending on the person's credit profile.

Jon Klaus · Answer

Should I escrow taxes and insurance?  Why or why not?

Don Konipol · Answer

Need to know what the property is worth - currently.

Jon Klaus · Answer

No appraisal yet, but very close to sales price.

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