Best way to structure note for Sale? - Posted by Rick-MI

Posted by Rick Roberts - Kansas City on July 26, 2000 at 20:36:07:


Please note that the discount that you will take on a note depends importantly on a number of factors. Off the top of my head, these factors include such things as the structure of the note, credit of buyer, income of buyer, cash down of buyer, whether the note has a payment history, the type of property secring the note, and whether the property will be owner occupied.

Let’s assume that you find a relatively good credit “owner occupant” with credit in the neighborhood of 650. In turn, I would consider structuring the note along the lines of the following.

Sale Price = $110,000

DP = $11,000

First Note = $99,000 (Terms of 11.5%, 30 due in 30)

Closing Proceeds

$92,000 = $ from sale of note (.93 buy rate)
$11,000 = $ downpayment
$103,000 = Total gross cash at closing

I have also put good payors into many homes with only 5% down, with a 5% or larger second. However, the discount on the note may be a bit steeper.

Also, since it appears that you do not need all of your cash at closing, you might want to consider selling only a portion of your notes payments, and have the remainder revert back to you.


PS - Feel free to e-mail me with any questions. Good luck!

Best way to structure note for Sale? - Posted by Rick-MI

Posted by Rick-MI on July 26, 2000 at 20:03:24:

Hi Everyone,

My wife and I are about to sell our home to buy another house. I will be advertising the house with no bank qualifying etc. to geneerate a quick sale. I have never structured a note to sell before and would like some pointers on the best terms, interest rate, etc for me to sell it without taking too much of a beating on the discount.

Here are the details of what I have in mind:

Sale price: $110-115K
Down: 10K
First Mortgage Note: $60K (To be sold at closing)
proceeds from sale to payoff 30K Bank mortgage, and provide additional cash to apply to purchase of new home.
Second Mortgage Note: $40K to be held by us. Terms will be something like 12%, 20 yr amort., w/ 5 year balloon. Payments approximately $440 per month.

What would be the ideal terms for selling the created First
to receive the most cash at closing? Any ideas what the cash price would be?

Any help would be appreciated, ad will hit the paper Fiday.

Thanks for your help in advance.


What are your objectives? do you want cash flow? - Posted by Michael Morrongiello

Posted by Michael Morrongiello on July 27, 2000 at 15:15:55:

You can sell off a much larger 90% LTV ($103,500.00 note, assuming 10% cash down on a $115K sales price) note as indicated and then simply then pay off your underlying liens, get your cash and then move on.

Or is the reason you are willing to hold a large 2nd lien because of tax implications or that you want monthly income?

When you are going to take back paper you should be aware of the following issues:

  1. Cash down (10% is fine, 5% is OK with OK credit)?
  2. Payor credit profile?
  3. Payor credit scores?
  4. Payor employment and stability?
  5. Interest rate & tems on the note?
  6. Balloon or no balloon?
  7. Occupancy?
  8. Condition, location, and value of home to be sold?
  9. Are you willing to season the note or not?

The way these variables interplay with one another will determine how agressive a note funder can be.

To your success,

Michael Morrongiello

PS. If you need assistance feel free to contact me