how to sell a performing note?

10 Replies

I've got a performing note that I had not anticipated continuing to hold that I'm wondering what my options are for selling it? I loaned a relative money for him to purchase a home on a 1 acre parcel that he plans to subdivide and develop. His original plan was to quickly refinance the property with a business partner who unfortunately dropped out of the project. I'd like to get my $ back so that I can deploy it in my own RE projects and yet the bank loan that he qualifies for on his own would only give me 60% of my original capital back. I'm wondering where I go to possibly sell the note and what typical note buyers would be looking for? Rough numbers are currently $236k remaining on the loan at 6.35% interest.The property was just appraised at $285. Thanks! 

@Peter Grote

Could you outline the original terms of the loan?  Also is the borrower current with his payments.  This will factor into what you might be able to receive for the note.

Loan Origination Date

Original Loan Balance:

Interest:

Term:

P&I

There is at least one portal, PaperStac, that offers note holders a portal to advertise their note for sale.

-Ray

Hi Peter, you can post on Paperstac which has a growing audience and great tools for consummating the sale. Generally you want to price the note so that the buyer is getting a min 8% cash on cash annualized ROI, the higher the more attractive.

Selling a note with UPB over $200K could really narrow down your audience though. One alternative tactic would be to have him get refinanced and get your 60% return of capital, then put a second lien on the home for the difference for perhaps a 15 or 20 year term at a 6-9% interest rate. Once he makes 6 or more payments you can sell that performing, seasoned 2nd loan. With the UPB being much lower on the second, you would have a larger buying audience.

Bob

PaperStac Great bunch of people.

I'm wondering...  

What kind of experience does your borrower have in building and developing? 

By your numbers, it looks like he was not making any money on the buy. If you have to bail out you might be even after your costs and you keep your family intact. 

GC 

@Peter Grote

Generally, notes are priced as a percentage of unpaid balance.  For Performing, you are looking at 80-85% of unpaid balance but I have seen as high as 90%.  Factors that contribute to pricing is seasoning(payment history) How consistently has the borrower made his payments?  Also, some measure of the likely-hood for the borrower to continue to pay, credit score, work history etc.  

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But 80-85% of UPB is with a borrower of really good credit and a really "attractive" note on other ways too like the terms.

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