Advice how to market a mortgage

15 Replies

I bought a property in 2004. Later one of the renters wanted to buy it from me. I sold it to him via owner finance. Some years back he could no longer pay for the home and was moving away. I took the house back for a fee. I then financed it again to a new owner in 2015. I am moving away and want to sell the note. It has a balance of $16,421.07 at 12%, maturing on 11-15-2022. It has been great income but I always wanted to be close to the property so I can check up on it from time to time. I have never wholesaled or sold a mortgage.

How do I sign over the documents and insure they follow the contract?

What is the best way to market this mortgage to another investor?

Most mortgage companies never see their investments in the flesh. If the note is performing I would t hesitate to collect from a distance. Otherwise there are national and local note buyers of course they will want a considerable discount.

The property has been upgraded over the years.  My replacement value on the insurance is $82,000.  It's due to upgrade next March probably another $9500.  It was titled in their name in Texas with a mortgage lein from me.

Originally posted by @Houston Pitts :

When you say discount what do you mean?  I would assume they buy the balance then collect the principle they bought it with plus interest.  

 Discount is a term that pertains to the time value of money.  A $1,000 today is worth more than $1,000 a year from now.

Basically the value of the stream of payments are 'discounted' to todays dollars by an interest rate (plus risk).  And that interest rate is compared to the risk free default rate (usually modeled as US treasuries to determine a fair value.  IE what is the value of owning the bond today based on the risk of being paid every month and being paid at a high enough interest rate to make it worthwhile.

So to sell that note, you will be 'discounting' the value of the stream of future payments to a point where it makes sense for an investor to buy it.  In most cases that price is a lot less to a third party investor than it is to you.

I hope that explanation helps.

There might be big commercial buyers who will pay face value but we've bought and sold paper always at a discount to face value. The buyer is taking a risk that the note will perform and generally wants a discount for that risk.there is also the risk that the borrower will pay off the note the next day and with no discount there would be no profit. Start calling note buyers and you'll find most offering 50-80% of face value. This is also what makes for monster yield in note buying. But it comes with risks.

Thank you for the explanations.  I did not think about that.  I also did not have an idea about how to calculate that discount.  I am sure there is a formula somewhere.  It does pay good, even from a distance, so I may should look at holding on to it.  Injust thought I would cash out on it and reinvest it in a new location.  I really appreciate everyone's comments.  Very insightful.

@Houston Pitts the financial formula for valuing an annuity is somewhat complicated. But basically it comes down to using the future value/ present value calculations available in a spreadsheet like excel.

You would want to take the present value (what is owed), the. Number of remaining payments, the interest rate per month (annual rate/12). And future value. If the note is completely paid off by then the future value would be 0.

That gets you the risk free value, i.e. No chance for default.

That gets you the financial value today of what those payments are worth, but as other posters have mentioned there are risks of the payments being made and individuals wanting to make a profit, so the current value will be lowered or discounted from the calculation I talked about above.

If you want to google for the formulas the topic is "value of an annuity". Basically any series of periodic payments.

Hope it helps. I understand the finance calculation piece, but the actual purchase of notes is not something I do, i.e. I don't know how much of a discount on the price of the note vs it's financial value would be normal.

I see.  I better understand why they discount for risk.  I guess the longevity and payment history doesn't have anything to do with it.  I will study more on the valuation.

Thanks for your help with this.

i just got some offers from some of the online note companies .

I just owner financed a 2 year old house $70k @ 8% for 30 years about 6 months ago the house value is $150k ,i got about 5 offers $61k,$61,500 $63k was the best offer i got. I am making good money but wanted to use money for another project. I'm not willing to take 10% less so it makes since to just keep it.

I assumed in my case with so much equity i could get face value ,but that wasnt the case.

good luck with yours

Hi @Houston Pitts ,

I'm unclear on why you're selling it. It's making 12%. You mentioned wanting to be close, wanting to check up on the property, and the like, a few times, but you're not a landlord (of this property) so there's no need to think like that. You hold a note secured by the property, clearly well below 50% LTV. And it's at 12%.... keep the thing, it's a "can't lose" note.

- You either make 12%, which is perfectly good.

- You foreclose on >$60k in equity at the cost of $16k, which is also perfectly good.

I'm assuming that $16k is a small enough number that the lack of $16k of liquidity isn't jamming you up otherwise. 

Chris, your right! I guess it was more habit than anything else.  I was taught a long time ago to try to stay within a half hour of my rentals.  That what this was originally.  As has been mentioned earlier mortgage companies rarely see the property they hold the notes to.  I'm gonna keep it! It is a good rate.  Thank you for your guidance.

Wow Chad, that is a huge discount!  I couldn't take a hit like that no matter what the house cost.  I'm going to see the note through.  Too many of you experts at this have pointed that direction.  Thanks again. Good luck with more of those properties.  I'm hard at this now full time.  Just been a week but I'm doing pretty well.  It's the research that is slow.

Thank you again.

Originally posted by @Houston Pitts :

Chris, your right! I guess it was more habit than anything else.  I was taught a long time ago to try to stay within a half hour of my rentals.  That what this was originally.  As has been mentioned earlier mortgage companies rarely see the property they hold the notes to.  I'm gonna keep it! It is a good rate.  Thank you for your guidance.

 No problem. And I'll take it even further:

If you have a steady stream of investors putting 75% down that want 25% CLTV (CLTV = only mortgage is this one that's for 25% of purchase price) notes @ 12%, then you should quit your day-job immediately and start brokering hard money! :)