Are you thinking about creating a brand new real estate note that you can turn around and sell right away? Good, then let us talk a little bit about what buyers look for when purchasing a real estate note. Just so you know – the best way to get the most current information on this subject is to call a qualified note finder.
A qualified note finder deals with buyers all day long, and knows exactly what they are looking for in the current market. Make sure if you are going to create a new note you consult with a qualified note finder before you create the real estate note.
4 Key Ingredients for Creating a Note that Sells
1. Most Important – make sure your note in secured by real estate. If you forget to secure the note to the real estate in question, your note will be worth nothing to a note buyer.
2. Interest Rate – buyers like the interest rate on the loan to be at least 6%. A buyer may buy a note with a lower interest rate, but may also ask you to modify the loan before purchase. You and the payer both have to agree to the modification before the note can be modified. This can create problems. So, with a new note shoot for 6% or better.
3. Note Term – buyers liked fixed term loans – 5 year, 10 year, 30 year, etc. They tend to stay away from interest only notes, and notes that have big balloon payments at the end of the term.
4. Payer’s Credit Score – When you are seller financing to someone, make sure you check their credit. You are allowed to check credit twice a year on anyone about to make payments to you or that is already making payments to you. You probably want to consult a lawyer about this statement, but I have been told on many occasions that this is federal law….And make sure your payer’s credit score is at least average – 625 or better.
There are other factors of course in creating a sellable real estate note, but these are the top four. Always consult with a qualified note finder before creating a new real estate note. Your finder will know all the current market values, and be able to outline the criteria you need for creating a sellable note.
When seller financing a property you have to realize the buyer and the payer are looking for different things on opposite sides of the spectrum. For instance, the payer wants a low interest rate or no interest rate, and the buyer wants a high interest rate. You want to accommodate the payer, but if you want to sell the note after creation, you have to look out for the buyer’s needs as well.
Don’t worry, you can be fair to the payer, and still meet the buyer’s needs. A qualified note finder will help you do just that.