Buying and selling notes? I have a question. - Posted by twr

Posted by Michael Morrongiello on July 09, 2001 at 23:58:45:

You really need to provide more specifics in order to complete the equation and address your proverbial question that most note holders or prospective note holders wish to know; “What will be the discount, if I sell the note…?”

Most note funders (including ourselves) will consider the most recent sales price of the property as its truest value as oppossed to what it may have appraised for. With some exceptions to this rule, this is indicative of how much of the mortgage industry works.

As for what a note is worth in cash today? The following factors and variable as they interplay on the transaction will greatly influence the answer to that question:

  1. Cash put down by buyers?
  2. Seasoning of payments on the note or none?
  3. Type, use, condition, and location of the property?
  4. What is known about the payors on the note?
  5. Their overall credit profile?
  6. Their credit scores?
  7. Are they personally liable to repay the debt?
  8. What do they do for a living?, how long?
  9. Finally, the actual repayment terms of the note (interest rate, payment amount, amortization, balloon or none, etc.)

Hope this helps…

To your success,
Michael Morrongiello

Buying and selling notes? I have a question. - Posted by twr

Posted by twr on July 09, 2001 at 19:23:17:

I hear talk that people buy and sell notes all the time in the R.E. world.
I would like to know; If I were to find a property for sale and I wanted to make an offer. At what perctage of the sales price/appraised value should I try to purchase the note in order to make a profit later? And, I know my question is broad when speaking property. But, lets just use a Commercial Property for example. A Commercial building with office spaces(6). Solid business leases(business pay everything). Asking price $495K, valued at $580K. At what figure would I need to settle in order to sell the note and make a profit? Keep in mind, I don’t want to hang onto the note long at all. I know of some companies that buy notes, but don’t know @ what percentage they’ll buy at and if they go off of Sales Price or Appraised Value.
Any feedback will be greatly appreciated. Thanks.


Re: Buying and selling notes? - Posted by David Butler

Posted by David Butler on July 10, 2001 at 13:14:26:

Hello TWR,

Mike Morrongiello has already addressed an excellent and concise roadmap with regard to note grading/pricing issues… but in reading your inquiry over several times here, I am still confused about what it is you are actually asking?

I am trying to put a finger on what note it is that you are trying to sell here?

If I am reading this correctly, you started out asking “…If I were to find a property for sale…”, but then you switch to asking “… at what percentage should I try to purchase the note…” - and then you illustrate by going back to a hypothetical commercial property sale… so - are you buying an existing note, or are you buying a property, or both???

If you purchase the property through seller carryback financing, you create a note, and give it to the seller. Now he is holding the note. It is his to buy and sell as he sees fit. What I can’t find in your question, is what note, or where it is coming from - that you are trying to sell?

Can you clarify this a little more?


David P. Butler