Creating Real Estate Notes that can be Sold

If the seller of a private note needs a large amount of cash immediately, they must be able to sell the note as soon as it has been created. And to quickly find a buyer, the note must meet the general buying parameters of these investors: a solid down payment, a decent interest rate, and typical terms.

• Every buyer has their own criteria that determine what they will or won't buy, but a down payment of at least 10% is a good minimum figure when creating a note. This upfront payment immediately creates protective Equity in the property which acts as the buyer's safety net in a foreclosure. When there is no equity in the property (buyers will use the lower of the property value or the sales price to calculate equity), all offers to purchase the secured note will be discounted substantially in order to compensate for the buyer's risk of default. A heavily discounted buyout offer often means the seller will not be able to get the money they need out of their note.
• A competitive interest rate (9% or greater) is important because it will make it easy for the buyer to purchase the note and yield the desired profit without much of a discount to the note holder.
• Finally, keep in mind that people typically avoid notes that do not follow a traditional term (amortized over 120 months, 180 months, etc). A two-year, interest-only balloon term is a perfect example of a note that most buyers would avoid, unless there has been a clear exit strategy established.