SITE MAP
CONTACT US
How to Structure Real Estate Notes-
I have been advising my clients for years "How to Structure Real Estate Notes". Because many of my clients over the years were creating real estate notes that couldn't be purchased. I have included this very important information here on our website to help individuals like you to structure more valuable real estate notes.
In this way, if you should decide to sell your note, you will realize more for your real estate note. And if you keep your note it will be worth more to you as an investment. Either way, you can't loose!
So just where do we begin to structure a real estate note? What is the best place to start? Well let's begin with one of the most important features of a real estate note and that is the credit score. Yes the credit score! If you are going to hold a mortgage on your real estate property, wouldn't you want to check your buyers ability to pay? Believe it or not most note holders fail to check the credit score of their prospective buyeres.
That is the first thing a bank would do if you were looking for a mortgage- they would check your credit score! And that is exactly what you should do! Check your buyers credit score. You can have your buyer go to www.FreeCreditReport.com and get a copy of their credit report and thus they could supply you with a copy as well. So what is a good credit score? The minimum score that you should accept is a score of no less than 650, otherwise most likely you would not be able to sell your real estate note.
The next most important item on how to structure real estate notes is the Interest Rate. The interest rate is your key to your ultimate profits. One word of caution here is to check with your local title company or your attorney to check on the maximum interest rate you can charge in your state. Remember your buyer is more than happy to pay you a higher interest rate, as they may not like banks or some may have scratch and dent credit that banks will not finance.
Property appraisal is another important aspect on how to structure a real estate note. To illustrate-say you were to create a note for $100,000 dollars, but the appraisal on your property only comes in at $75,000. Your note would be in jeopardy if tried to sell your note. The rule of thumb here is that the appraisal must be equal or greater than the amount owed on your real estate note.
The down payment is another way on how to structure real estate notes. The down payment is the same as when you put earnest money in an escrow account when you purchase real estate through a real estate broker. The down payment on your note from the buyer not only shows their motivation, but also aids in protecting you from your buyer going south, as it makes it harder for them to walk away from your mortgage when they have their cash tied up in the deal. To an investor, this essentially means the same thing as it protects our interest as well.
The next item on "how to structure real estate notes" is the term of your note. There is nothing wrong with offering your buyer a 15-30 year term on your note, but one of the biggest mistake is that note holders fail to include is a 2- 5 year balloon. By doing so you have just made your note more valuable if you should want to sell it.
For example, even if you plan to keep your note by including a 2 - 5 year balloon your note and the balloon becomes due, you then have set yourself up to have two choices- You could accept the cash payoff or you could renegociate your note with your buyer to continue making the remainder of the payments until the note is paid in full. By making a ballon payment due you can protect your asset should ever need to sell your real estate note. By the way if you are interested in selling your note that you created or if you have an existing real estate note- please fill out the real estate note information form below.
Another important item to keep in mind on "how to structure real estate notes" is to keep in mind this one fact if you are going to take back a second position note. The rule of thumb here is the first mortgage on the property cannot be more than twice the size of the second, otherwise you will not be able to sell it.
To illustrate- if the first mortgage on the property is $100,000, then the second mortgage (real estate note) cannot be anymore than $50,000. In other words no more than a 2-1 ratio. Also keep in mind that the first and second mortgage combined together cannot exceed the total property appraisal. In fact, better yet would be if the appraisal was to exceed the combined amount of the 1st and 2nd.
These are the most common items that are overlooked by real estate note creators. If you should have any further questions please Contact Us as we would be more than happy to assist you. Again if you should have a real estate note that you would like to sell, please use our Real Estate Note Information Form below. Thank-you.
Sincerely,
Robert L Pomerleau-President
Robert Pomerleau-Pres.
Tel: 603-330-3911
Fax: 866-209-7188
© 2002-2008 Fast Cash Funding All Rights Reserved.