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Auction Real Estate Sales

How to Convert Your Real Estate Notes into Quick Cash

If youre a real estate investor needing quick cash, selling your notes could offer a fast, easy solution.

It can happen to anyone. You find yourself in a situation where you need a chunk of cashinstantly. Maybe you have to handle an emergency or simply want to free up funds to invest elsewhere. Whatever the case, selling mortgage notes can put money at your disposal within a matter of weeks.

Selling mortgage notes allows you to convert small monthly payments into an almost immediate lump-sum of cash. You wont have to wait to recoup the bulk of your investment. Plus, you can avoid the risk associated with owner financing. And you can spend the money however you want; its yours and there are no strings attached.

Mortgage note buyers purchase a wide variety of privately-held mortgage notes, including promissory notes, land sale contracts, deeds of trust, contract for deeds and other debt instruments secured by virtually every type of property. They can work with you if youre receiving payments on residential, commercial and other types of property.

Some examples of the type of notes you can sell, include:

Residential Notes For houses, townhouses, condominiums, apartment buildings, and mobile homes

Commercial Notes For office, retail and industrial

Vacant Land Notes For developed land, undeveloped land and land not designated as a specific-use property (such as farm land or waste storage)

How It Works

Selling mortgage notes simply allows you to receive cash now for your future payments. You may be eligible to take advantage if youve sold your home or an investment property via owner carry-back financing or seller financing and are now receiving payments on that note. You could be cashed out in two to three weeks, receiving the funds by check or electronically.

Most note buyers prefer to buy real estate secured notes that are in the first lien position or wrap around the first lien position. If you have a second lienwhere theres a bank or another investor with a more senior lien against the propertyyou may be able to sell the note. However, the price that you get won’t be nearly as highunless the buyer has at least 30 percent of his own money as a down payment or in built-up equity.

Heres how the process of selling notes works: You need to contact several mortgage note buyers and request a quote. They will probably ask you to submit copies of the deed of trust or mortgage, the note, title policy, and closingsettlement statement. If there is no recent appraisal or title policy available, they may be ordered at the note buyers expense.

Each of your notes will be evaluated on a case-by case-basis, with a number of aspects considered. These factors include the purchaser’s equity, payment history, seasoning of the note, credit rating of the buyer, term of the note and the remaining balance due on the note.

A Variety of Ways to Sell Notes

If youre like most note sellers, you may automatically think of selling the entire note. That could be the best route if the note represents a high value and this is the best fit for your financial situation.

However, you also have the option of selling only part of the note. This could be ideal if you like the interest rate youre earning on the note, but just want to receive part of the cash now. Over the long run, a partial payment may be able to provide you with a much higher rate of return.

For example, lets say you sold a house for 120,000, the buyer gave you 20,000 as a down payment, and you have a 100,000 note at 7 percent for the next 15 years. You enjoy getting the income each month, but need 30,000 for another investment or to pay off debt. You could opt to receive that 30,000 in exchange for buying the next “x” number of payments, after which the note would go back to you for the balance of the term.
Or as another option, you could take a lump sum of money now, plus receive part of the payment each month thereafter. If youre not sure which option would be better, dont worry. A note buyer can work with you to determine the best solution for your needs.

Tips for Selling Your Notes

Most mortgage note buyers focus on making the process relatively simple, easy and fair. They offer competitive pricing, complete confidentiality and hassle-free closings. However, the note purchasing business isnt highly regulated, so be sure to locate and work with a reputable company. Here are some things you should keep in mind about purchasing notes:

Up-front fees: There should be no up-front fees. A good note buyer isn’t going to charge you just to provide quotes or check the buyer’s credit.

Closing and other costs: There should be no points, closing costs, or other garbage fees at any point in the process. Any fees are already included in the pay price to you.

Appraisals: Note buyers normally require you to pay for the appraisal or the title policy ONLY if the property appraises for less than the sales price or there are problems with the title that prevent the purchase. However, these payments should cover just the buyer’s actual costs.

Credit checks: Be sure that the note buyer checks the credit of your property buyer up front. Unscrupulous buyers have been known to quote one price and then lowering it toward the end of the process. They often use the excuse that the “property buyer’s credit was low”. This is a twist on the old “bait and switch” scam, and its completely unethical.

Written Agreement: Ensure that the seller gives you a written purchase agreement covering the purchase price, contingencies, etc. Also, dont hesitate to ask questions about anything that is not clear. Any items that are not spelled out in black and white are part of the agreement. Its that simple.

Selling real estate notes is easy, and it can be a great way to generate a lump sum of cash for other uses.

A real estate agent will guide you to – and through – the most important decision of your life. How do you know, for sure, that he will act in your best interests?

How do you know if he will really work for you? Is he too busy for you? What of his personal integrity? How much effort will he expend for you?

You will want to feel very comfortable with the real estate agent that you choose, comfortable enough to be able to say ‘no’ to the bargain of the month and ‘no’ to the almost perfect house.

He must not be intimidating to you, yet a business-like attitude and assertiveness are qualities you will want in a professional acting for you.

Often when you are choosing a business professional, the outcome is not so critical, but who wants to lose their dream property? Choosing a real estate agent falls into the same bracket as choosing a medical doctor or a lawyer.

The interview and short listing process is really all about finding one that you feel comfortable with. Real estate agents usually have a ‘presentation’. This is usually a very business-like procedure and if they are having an off day, the presentation may click in automatically.

However, you will need to get past the ‘rehearsed’ person and get to know the real one. Most real estate agents will have integrity, they have their reputations to think about, but you need to feel that you also have one that understands you and your wants.

Some real estate agents have amazing sales records, so ask about sales history. Ask if he would mind giving you some recent sales to choose references from. Gather up at least half a dozen and then choose your own references to phone. Before you phone, ask the real estate agent a few questions.

For instance: How long was each house on the market? How many were reduced and why? How many times and by how much?

Some other questions could be: Will there be a marketing plan drawn up for the sale of your house? Will it be carried out? What guarantees do you have? To see if the agent is keen and enthusiastic, ask him if he has taken any extra real estate courses.

See if you find his voice or tone very monotone; if so, do you find it relaxing, or would you prefer a lively voice generating a more energetic feeling?

Finally you must try and gauge the quality of his negotiating skills. Ask about commissions; in a house sale it will be necessary for you both to be able to discuss money amicably.

Observe the way the real estate agent explains things when you try and negotiate a lower rate. If he can convince you that his fee is fair and that he will have to work hard to earn it, then he can convince others to listen to his viewpoint when he is working for you!

All this discussion will give you enough time and a good basis on which to judge the personality of the real estate agent. Then the bottom line is that you have to pick someone that you feel you can trust.

In commercial real estate, the quality of contacts and relationships you make is essential to your success. A good portion of this business relies on how you interact with brokers, buyer, sellers, engineers and city municipalities. In order to build a solid contact list that is sure to pull you through any situation, there are some key actions you must make with every person you come in contact with.

Many people simply meet a person, most likely forget his or her name, and continue with their day, with no reflection about that person, what they do, and how that new contact may contribute to their success. As a commercial real estate insider, you must start looking at every person as a possible opportunity, within and beyond your work hours.

During work hours, when you are calling and speaking to brokers, sellers, potential buyers, the city, investors, lenders and all the other various professionals in this business, never let a stone go unturned. Beyond just your normal business banter, take a minute to ask what the other person does, what they are interested in, and explain yourself to them as well. This interest must go beyond the obvious, such as, I am the owner of the property. or I am a broker in Georgia.

Dig a little deeper, and you will be sure to find a wealth of information from many of the people with whom you speak. Perhaps you will discover new projects that need a joint venture, a commercial development hot spot, a property that needs to be bought right away due to an emergency, a person who specializes in a specific type of property that you want to be involved with and so on.

Every person has the potential to further your commercial real estate endeavors. So even when you are not at work, talk to people! Now, be courteous, of course, and don’t ream a person with a list of your qualifying questions and expect them to race to your side and help you out. There is always give and take in any valuable relationship.

Build rapport and get to know the people. A simple, So what do you do?, What business are you in?, or What are you interested in? are great conversation starters that will help get the ball rolling.

I have met numerous private investors and loan officers to whom I give more referrals than they know what to do with. In turn, I can get money, not only for my projects, but for those who may be purchasing my developments as well! It is amazing what a little kindness, genuine interest and casual conversation can unveil.

Although talking is a great way to find information, it is what you do with your information that really counts. Every person I meet, or have a potential to do business with, I ask for their name, number and email, so that I might contact them sometime about their work. If it is someone you feel has an asset or other contacts that could help you, explain to them that you think it would be mutually beneficial to do business with each other. Always ask permission to contact them if you should have a project they might be interested in, or if they may have more information regarding their profession.

This may seem forward of you in some cases, but you can always explain to them that you are always looking for people to do business with, and that their help would be very much appreciated. It is astonishing what people are willing to do if you ask for their help.

Give them a business card and your contact information as well. Give them permission to contact you whenever they would like, and tell them you look forward to speaking with them on another occasion.

After you have had a meeting with a new contact, store the information in a safe, organized place. Write a note about what you discussed, what you liked about the person, and how they might help you. Be as detailed and specific as possible! The last thing you want to do is sit down to a list of one hundred contact names and numbers, and have no idea what they do, or how each may benefit from building a relationship!

I know many people use digital resources, rolodexes, and other such organizing devices. This is great. However, I have my own tool that has proven to work really well. I use a basic, spiral notebook, like the kind you would use in high school. Because I may not always have access to my computer, or be at my desk with a rolodex, I keep with me this basic notebook wherever I go!

It is here that I write the name, date, place and contact information, including notes on what we discussed with every person in which I could potentially do business. The pages never fall out or get lost. I do not have to wait to get to a computer to type this information that is fresh in my mind, and it can conveniently travel in my car, briefcase and just about everywhere else! It is not fancy and complicated, but easy and functional. I call it My Big Black Book. You should try this method, and see how it works for you.

Realistically, not every person you meet is going to be that super contact. However, if you have a very informative and helpful conversation with someone, make it a point to send them a letter or email thanking them for their time, how you will use, or have used their advice, and the results you’ve experienced. Be sure to document what it was that you discussed so they know the exact conversation to which you are referring.

By being grateful, acknowledging other people’s work, and staying in contact with new people you will quickly build a contact list to rival those of seasoned commercial real estate professionals.

You will have go to contacts that can assist you on specific projects, put a good word in for you with the local city government, recommend you for projects, and notify you of properties that you may be interested in. Your opportunities will come more frequently and with better possibilities as your contact list builds. In a nutshell, follow these simple, yet essential rules:

Build relationships.
Be grateful.
Stay in contact.
Document all conversations.

These are the keys to building a successful, money-making contact list that will be with you for years to come.

Ages ago, people lived in elaborate and magnificent castles that were often protected by moats. A moat is a wide, deep ditch dug around a castle to prevent enemies from overtaking the castle. By surrounding the castle with water, moats served as an effective deterrent and provided the castle with the security it needed to prosper.

Today, many of us live in our own plain and simple financial castles that are much more vulnerable than the castles of yesterday. Not only do our financial castles not have any sort of moat for financial security, many real estate investors do not know how to build a moat to accumulate wealth and retain it.

Why do most people today not have a financial moat? Why no financial security? Why are most people so financially vulnerable? We live in a culture that has brainwashed us into thinking that we should be paid per hour of work.

If you are like most people, you have to work for a living. If you don’t work, you don’t get paid. You see, most people have linear income. So while linear income may be the way most people earn their paychecks, it is also the reason many of us cannot afford to retire. This type of income continues only as long as you continue to work.

1. If you are an attorney, you get paid whenever you represent a client. If you don’t provide legal services, you don’t get paid.
2. If you are a teacher, you get paid when you teach our children. If you decide not to teach, you dont get paid.
3. If you wholesale or retail houses, you get paid when you flip a house to another investor or sell it to an owner occupant. If you quit wholesaling or retailing houses, you don’t get paid.

The real test is that if you are let go by your employer as I was in June 2002, your income definitely stops. After almost 30 years of working for security for different companies, I was left out in the cold in the middle of summer. I discovered I was not secure; I only had the illusion of security. Working for a company is fine, but you must understand it will never give you security.

That’s how linear income works. You receive income when you work. Usually you earn just enough income to pay your bills. When your income stops, youre on the brink of disaster. In fact, if youre like most folks, youre no more than two or three paydays away from a serious financial catastrophe.

OK, so how do we start to build the moat that will provide us with financial security?

You start digging a ditch around your financial castle with residual income. A complete change happens when you start earning residual income. Residual income means you continue to earn money for a long time. When you do something right just one time, you get paid over and over again for what you did.
a. If you write a hit song, you get a small royalty every time the song plays on the radio.
b. If you write a book that becomes a best seller, you receive a regular royalty check from your book sales.
c. If youre already a multi-millionaire and had a few million to invest in quality stocks and bonds, you now get a regular dividend check.

Residual income sounds nice, doesn’t it? Unfortunately, most people have trouble developing a residual income.

Why?

We can’t sing or write music. We don’t know the first thing about writing a book, much less how to go about having it published. And I really cant remember the last time someone came up to me and told me they had a few million pounds sitting in their checking account waiting to be invested.

However, there is hope.

There is another way to develop residual income. Theres a way to get monthly checks so that we can do the things we want in life. So that we can achieve our dreams. And best of all, almost anyone can develop this residual income that will give you the financial moat you need to accumulate and retain your wealth.

It was only after my wife asked me how many properties I had kept for ourselves at the end of 2004 that I realized that my buy and sell plan was making us very good money, but it would not make us wealthy. I realized I had to keep buying and selling properties to keep making the money. So I launched a strategy that complemented our buy and sell strategy. The approach is to buy properties at substantial discounts, rehab the properties, and then rent them out. And the best part is that the tenants pay for my properties. Once the properties are paid for, I will continue to have rental income for the rest of my life.

But what about tenants and toilets, you ask. Well, everything has a price and youll have problems with your tenants. But you have options. You can (a) develop a system to minimize your problems with tenants, (b) retain a realty management company to deal with the tenants or, (c) offer seller financing to your tenants so they become owners and they no longer call you.

Personally, I like the buy and hold strategy for two principal reasons. First, I continue to accumulate assets or rental properties. Second, I will continue to receive residual income for the rest of my life whether I continue to rent the properties or elect to use a seller financing approach so I deal with a buyerowner and not a tenant.

The more properties you accumulate, the more residual income you receive. And the more residual income you get, the wider and deeper the financial moat you will build for yourself. The wider and deeper your financial moat, the more difficult it will be for circumstances to penetrate your financial castle. You will have the security you need to truly prosper.