How to Create Marketable Real Estate Notes (1)

The day has come when savvy entrepreneurs, investors, rehabbers, FSBOs, Realtors, and other real property owners have come to the realization that they can sell their properties faster by offering owner financing and still get to a cash position.

The advent and acceptance of what often is referred to as a "simultaneous closings" where a property is sold, and the private seller-financed note is sold to coincide with the sale of the property has become an integral way that many note deals get done these days.

I am often asked how can I structure these types of deals to provide for two things:

1. A saleable note that can be easily converted into cash
   
   

2. A minimal note discount from the balance owed

The following circumstances surrounding a potential note deal will come into play when a note investor, including ourselves, is looking to purchase these newly created notes. Let�s briefly explore each of these variables.

Type of property

As far as the collateral securing repayment of the note is concerned, clearly a vacant land parcel that has no improvements attributed to it would be considered far riskier than a mortgage lien on a single-family dwelling, which is generally considered to be the easiest type of real estate to finance, sell, or dispose of.

Different types of collateral warrant different levels of exposure from a funder. Residential properties are far more acceptable than commercial properties or land. Within the residential sector, there are varying degrees of acceptance over the actual type of residential property.

A mortgage lien on a single-family detached home is far more desirable than one on a condominium, town home, or mobile home, etc. We will focus on the most desirable type of collateral for an investor in paper and that is the �bread and butter� single-family home.

If you are creating paper and want to maximize the amount of cash you can receive, then a properly structured first lien mortgage on a single-family, owner occupied, detached dwelling is by far the type most note funders can price aggressively--meaning, maximizing the funding exposure and minimizing the discount on the note sale.

Please stay tuned for more details.