How Would You Broker This Note?

Someone owns a house free and clear — no mortgage.

They sell their house for $200,000, receive a $40,000 down payment from the buyer and take back the $160,000 balance as a note, an IOU, from the buyer, where he promises to pay the $160,000 plus interest in installments.

The note is secured by the house, so if the buyer defaults the seller can foreclose and get it back. In other words, the seller is the bank.

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3 thoughts on “How Would You Broker This Note?”

  1. If you’re a salesman on the floor at Sears, and a customer walks in to buy a riding lawnmower, you don’t jump him and try to sell him a refrigerator!

    The first thing… talk to the note seller. Discover his motivation. When, how soon does he need it? Why and how badly does he need to sell.

    Then find out what he wants for the note. Does he need only a certain amount of cash? If he needs $50k for his kid’s college tuition, you don’t try to buy the whole note. It costs you much less out of your pocket to buy a partial, and your yield is higher to boot. So, why would you want to buy the WHOLE THING.

    THEN call the note investor for a quote on a partial, plus a quote on the whole thing.

    When you call the note seller, lead with the full price offer, perhaps apologizing for such a low bid. The follow with the partial offer, pointing how much better it is for him in the long run, because the loan balance will still be pretty high when the note payments revert back to him.

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