Owning a real estate note is, in many ways, like owning an ice cream shop. You have different flavors of ice cream to satisfy the various tastes of your customers. Having an ice cream shop of just chocolate or vanilla ice cream would limit the growth potential of your business. Use that same thought process in note investing. If you own a real estate note and try to sell the whole note you are only trying to sell one flavor of ice cream. You are also limiting the number of potential note buyers you can reach. Why not develop additional flavors to help in sales process. Here are a few flavors that can help you increase your buyer pool.
Partial Front End Payment Note Sale: Say you have a note that is amortized over 30 years with a balloon payment due in 10 years. You could always sell the 10 years of payments to a note investor and retain the ownership of the balloon payment. By doing this, you collect some cash today for the next 10 years of payments and hold a future cash stream on the property. Selling the 10 years of payments allows those investors with smaller amounts of cash to buy your note payments without having to buy the whole note which they may not be able to afford.
Full Sale, Split Funding: What if you were able to sell the note to an investor in two payment installments. Say you have a note that has 300 payments left on it. You and a note buyer can come to an agreement to sell the first 150 payments today, and then sell the second 150 payments in the future. This flexibility can help a note investor buy your whole note, but do so over time. This gives you cash today and cash tomorrow while also giving your buyer the time to build up the cash for the other half of the purchase
Partial Sale, 50% of Each Payment: What if you could sell 50% of the note and retain 50% of each payment. This sales model is very attractive if you’re looking for cash and cash flow when selling the note. This investment model has been very effective for me in the past and is one of my favorites. Be sure you meet with a securities attorney to ensure that by selling your note in this manner you are not creating a security.
Now you have a few new flavors to add to your note sales techniques that are sure to attract a larger pool of potential buyers . After all, who doesn’t love a little variety in their note purchases and their ice cream!
Photo Courtesy: Debs