Posted by tb on January 27, 2000 at 24:00:54:
Thank you for your help and guidance. Each day I learn a little more and realize just how exciting the it is to play the paper game!
I will probably invest in your materials, given the incredible comments I`ve heard from so many on and off of this site. Need a little cash flow first…LOL
Note Creation and Payment Options (long) - Posted by tb
Posted by tb on January 26, 2000 at 18:05:33:
Thanks to everyone who is taking the time to read and respond to this post. Your advice is always appreciated.
I`ll be creating notes on FSBO unimproved parcels and holding the notes for the cash flow. For reference, here is the structure of the notes in question.
Parcel Price : $2250.00
Down Payment : $250.00
Owner Financed: $2000.00 at 10%
Here`s the question.
It seems that by being flexible and giving buyers the option of different payment schedules, we can create
many more sales than on one specific monthly payment plan.
$2000.00 at 10%
24 Months @ $92.28/Month
36 Months @ $64.53/Month
48 Months @ $50.72/Month
60 Months @ $42.49/Month
Besides giving the buyer the ability to decide his/her own payment schedule, thereby increasing overall sales, the profit made on the 10% over the life of say the 60 Month note would, of course, be greater.
Does anyone have any experience with this type of note creating and creative seller financing (dumb question, I know)?
Looking for any and all perspectives on this type of deal. All ideas, advice and comments greatly appreciated.
Thanks a Million!
Consider these issues… - Posted by Michael Morrongiello
Posted by Michael Morrongiello on January 26, 2000 at 19:16:25:
Offering financing options to prospective buyers is Just like buying a custom tailored made suit as opposed to an off the rack suit. The custom made clothing tends to fit better…
You have discovered WHY I call the use of seller financing to move properties quickly FREE FORM FINANCING. You can work with potential buyers to make the financing FIT their needs as well as your own.
Need to lower or raise the interest rate, Need to start out with lower payments intitially and then increase them, Need to keep a monthly installment or loan term to a specific level, etc. ALL of these options you have when CREATING your own financing.
As for the paper you are going to generate here are some issues to consider:
Always get some sort of credit application on the buyers that provides a basic profile of WHO they are ?, WHAT they do for a living, and provides SS#, employment info, etc. - later on you be glad you did when you need access to this info
Run Credit on the buyers even if you are going to go with them regardless of their credit. Clearly Payors who have credit that is sloppy or was sloppy is associated with MORE FUTURE RISK of repayment. These payors have to “pay the freight” for their past problems. You should be able to charge them a higher interest rate as a result.
Make sure you clearly document the payment historys on each of the accounts. There are several computer servicing programs that can do this for you.
Keep organized and neat files that have all the relevant documentation easily available.
These suggestions are to make life easier for you LATER on and to also allow you to SELL some of this paper if you choose to after it is “aged”. If you do decide to go that route feel free to give me a ring.
Best of luck.
Re: Consider these issues… - Posted by tb
Posted by tb on January 26, 2000 at 20:22:34:
Thank you for your insight, experience and advice. I was wondering if you might expound a bit on the issues, that you can guarantee, I will be more than considering.
This question has to do with (1) and (2).We do intend upon going with buyers regardless of their past credit. We`ve discussed some sort of credit application/ credit history background check that would allow us to implement higher interest where it is due and manage each note on an individual basis. Do you have any advice as to how we can gather this information voluntarily from our buyers without seeming to break our promise of “regarless of past credit”? All advice in this area would be greatly appreciated, as we feel this issue could be akin to walking on egg shells.
Would you mind being more “name” specific about the computer servicing programs that would help us keep clear documentation of buyer payment history? (would NoteSmith be one of these programs perhaps?)
We do realize that it will be impossible to grow without selling off a good portion of our notes at a discount. Due to the relatively low quality of these notes, would packaging them in pools of say 10, 20 or more attract better offers on these pools, or would selling them seperately result in the same amount of interest? Due to the low sums these notes contain, how long would it be before a small note like this is considered “aged” or “seasoned”?
Again Mr. Morrongiello, thank you for your time, patience and cooperation. I follow all of your posts and save them all on disk.
Re: Consider these issues… - Posted by Michael Morrongiello
Posted by Michael Morrongiello on January 26, 2000 at 23:14:58:
In response to some of your concerns:
- In my opinion You can still advertise “regardless of past history…” and simply tell the folks. “We are going to be acting like the bank and as such we will need to have a basic credit application form completed and have your authorization to run credit”
The prospective buyers should be told that they cannot be provided the “best” rate on the financing if their credit is heavily blemished. If you intend to take most anybody in This way you can “tweak” the interest rates higher on those HIGHER Risk borrowers
Yes, Notesmith is a good servcing program. Call John Moren and tell him I told you to find out about it
http://www.notesmith.com OR (888) 226-2486
You are right the small loan balances and lack of strong crfedit payors will affect the liquidity for this paper. The best thing that can offset some of these negatives is a good payment history and a note that has at least 12 +/- months of documentable payment history to it. As for getting better pricing in pools; That will depend on the size of the pool. 20 notes with an average size of $2K is still only $40,000.00, that hardle considered much of pool. If you can accumulate $250,000.00 +/- then you can look at pool sales otherwise I would age the accounts and keep on top of these people to make sure they pay. I hope you know the kind of accounts these will be. I call them "high maintenance " collection accounts
One thing that might also improved the collateral is if the buyers add improvements to the property. Things like a well, septice system, bringing electric to the site, etc. all will add value to the collateral.
Let me know if we can assist you further. Again best of luck.
Re: Consider these issues… - Posted by John Behle
Posted by John Behle on January 26, 2000 at 22:06:05:
Notesmith is an Excellent program and would more than meet your needs. You can link to it from my site.
I concur with Mike’s comments, but consider “Collateral Conversion” as an option too. Some of your buyers will also have other real estate or their own personal home. That is another use for your application. Ideally make that a FNMA 1003 form (Residential Loan Application). Offer them better terms for this more “liquid” paper.
You can offer a lower rate, longer term, etc - even if there is problem credit. Many note buyers still buy based on LTV and ITV.
Yes, you can package and pool the notes, but you are FAR better off getting better collateral right at the start. If you are working with the developer or subdivider, then also consider a replacement guarantee if a note goes bad. What that looks like is that the developer will immediately replace the note with another new or existing note if it goes into default.
Re: Consider these issues… - Posted by tb
Posted by tb on January 26, 2000 at 23:30:20:
Thank you for taking the time to answer my questions. I hope that my lack of knowledge or experience in the area of creating paper and creative financing doesn`t unnerve you.
I must say that your first paragraph honestly went right over my head. Would it be possible for you to explain what you meant by “Collateral Conversion” and would it also be possible for you to go into a little more depth concerning the FNMA 1003 form? (Fannie Mae is about as far as I got )
Although I am not working with a developer or subdivider, would you still recommend my corporation consider a replacement guarantee if the note goes bad? I had not thought of that up until this point, but it seems to be a fantastic strategy for showing ones willingness to insure the note sold.
Again, I apologize for my lack of understanding,but am studying and learning something new everyday in the world of paper and financing. I deeply appreciate your advice and look forward, as always, to your posts.
Re: Consider these issues… - Posted by John Behle
Posted by John Behle on January 26, 2000 at 23:41:19:
“Collateral Conversion” is just substitution of collateral. Instead of creating the note with the land as collateral, you create a note secured by some more desirable collateral - like their personal home.
The FNMA 1003 “Residential Loan Application” is just the standard loan application form that is used in the conventional mortgage lending industry. You can obtain one from any lender. Using that standard document is preferable.