Seller Financing - Should I sell the note?

Question

I'm selling a piece of land to a developer, with $200k of the sales price being seller financing. It's due in 12 months (will likely only take them 9 months) at 10% interest paid quarterly.

I can get a higher return on my money on other projects, so I'm considering selling the note.

First, are buyers of notes interested in buying such a short term note? If I do sell it, should I find the buyer before we close next week, or should I sell it after we close?

I've never dealt with notes before (but I do have a finance and accounting background), so any advice is welcomed.

Kareena Heath · Answer

Great that you sold the note for face value!  Good that you found a different title company congrats!

Jason Dillard · Answer

Sam can get face for this note by buying something with it.  I would take it down on one of my apartment buildings for example.

Jay Hinrichs · Answer

The builder saw you guys coming LOL... that's a builders dream... most sellers simply wont do this.. I know I would never take a second back from a builder behind a first daddy taught me that 35 years ago LOL... so just stand pat.. it will probably go find you will get your payoff and your 10% ... but like I said try to list it on FCI and see what happens never know.. but for sure you wont get anyone to bid it down .. that simply wont happen

going interst rate you should have charged for that scenario is 15 to 18% not 10 ... unless you sold the dirt for a lot more than you could have if you would have taken cash.

going interst rate you should have charged for that scenario is 15 to 18%  not 10  ... unless you sold the dirt for a lot more than you could have if you would have taken cash.

Jay Hinrichs · Answer

@Sam Grooms  congrats...

Sam Grooms · Answer

@Jay Hinrichs, he offered us first position at 8%, we told him we wanted 10%, he then offered 10% but in second position. I really don't see much risk with this particular builder (we know them, they work strictly in our area, and they don't take on too many projects at once), so we took it. I wouldn't do that with another builder and I wouldn't do that on a long term note.

Anyway, I sold the note yesterday for the full $200,000. Had to use a different title company.

Jay Hinrichs · Answer

not to spoil your thought process but that note basically would command a huge discount.. seconds behind construction 1st are highly risky no matter who the borrower is..   you might want to put it on FCI exchange and see if you get a newb to bite on it. but anyone in the business if going to give you a severe discount for this note .. I would want 30% yield personally for the risk..

Jason Dillard · Answer

Your title agent can do an assignment of note and mortgage(or deed of trust).    I am in the process of getting a note in NC assigned to us for some houses we built.

Sam Grooms · Answer

Does anyone know the process for the selling the note?

I found a local investor that want's to purchase it. I contacted the title company who handled the sale (closed 30 days ago), and they don't seem to have a clue on how to transfer ownership of the note. I actually had the branch manager tell me this isn't a function of title, and referred me to a note servicer. Am I wrong, or would this transaction be done solely through a title company? I want to use the same title company with the hope of reducing our fees, but maybe I'll just have to use a different company.

Sam Grooms · Answer

@Chris Seveney, here are the details on the note:

We just sold a property for $360,000. The buyer put down $160,000 and we did seller financing for the remaining $200,000.

The property was sold to a builder that will be doing new construction on the lot. It is in the Arcadia Lite neighborhood of Phoenix, and the builder will sell the house for around $900,000. This builder usually takes 7-9 months to build, and has the houses sold before they hit the market.  The note is in second position, with the construction loan being in first position. The construction loan covers up to 500,000. Construction is expected to cost around $350,000-$375,000. There is minimal risk, mostly market related. However, even if the market dropped from $900,000 to $575,000 ($200,000 note, plus $375,000 construction) in the next 9 months, the principal on the note would be secure. Terms on the noteInterest rate: 10%Payments: QuarterlyTerm: 12 monthsWe think we can earn more than 10% on an active investment (flipping), so we are entertaining the idea of selling it. We have no doubt that this note will perform, so we will not be taking a discount on it. We are looking for a passive investor that would just like to earn 10% on their money over the next year.

Seller Financing - Should I sell the note?

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