Re: Note Question - Posted by David Butler
Posted by David Butler on March 22, 2001 at 15:16:33:
Good for you… always a real pleasure to see real estate agents get back in the game. That’s were the private note business started from, after all!
One of the real benefits of dealing in the private note markets is that there is a great deal more flexibility. That’s the primary reason most of these notes are created in the first place - either the property doesn’t qualify for conventional financing, the buyer doesn’t qualify, or the financing that is available is unattractive to the point that it doesn’t work for one or both of the principals to the transaction.
I am not quite certain where you are going with your question however… in terms of how do you qualify the deal to protect your seller, or in terms of selling the note to a note buyer when the property is sold? I ask this, because though the two overlap a great deal, in general an experienced note buyer will be somewhat more risk tolerant than the average seller.
On the other hand, a note buyer will usually be more thorough in checking the details of the note, the payor and the credit history.
Certainly, if you are considering a seller-financed offer, you will definitely want the Buyer to COMPLETELY fill out a credit application. I recommend using a generic form similar to what landlords use for running credit checks on prospective tenants (this helps insure that the parties understand you aren’t doing a “loan” transaction). Or you can get a similar form from your local bank. (You can easily get a Form 1003 about anywhere, but that’s a residential loan application, and if you think the note might be sold, it’s generally better to avoid using that if possible). AND RUN THE CREDIT…
And do just what lenders do. Require income and employment documentation from the prospective Payor. Two years is best… if they are employed, ask for copies of the two most recent W-2’s and two most recent paystubs. If they are self-employed, ask for two years tax returns and a YTD profit & loss statement. Keep copies of all this stuff in file.
If you (your seller) intends to sell the note shortly after closing, it is probably best to go ahead and get an appraisal done ahead of time. At the least, I would be sure to have a thorough CMA in file, in case he decides to sell the note sometime later on down the road.
To get some idea about qualifying the deals, you will likely find our FREE report, NOTE GRADING/PRICING GUIDELINES very helpful, at:
In addition, there is a wealth of related information regarding creating notes, clauses, etc. right here on this discussion board. Use the search facility, and plug in some keywords such as “creating notes”, “creating notes for sale”, “table-funding”, “simultaneous closing”, and similar. This will bring up a lot of pointed discussion you will find invaluable in your efforts.
If you are dead serious about CLOSING MORE DEALS, and making this a regular part of your normal business routine, you can do no better than to invest in several excellent books you should keep on your desk for ready reference at all times. These were written by long-time top real estate brokers, for real estate brokers… and they will do you a world of good.
OWNER WILL CARRY (William Broadbent, $30)
Real Estate Finance & Investment Manual (Jack Cummings, $35)
CALCULATOR POWER (Jon Richards, $40)
Follow this path should quickly bring you to the top of your game in the alternative financing marketplace.
Hope this helps, and best wishes for your continued success!
David P. Butler