Selling my note - how does it work? - Posted by Kristine Poe

Posted by PeteH(NYC) on May 31, 2000 at 11:11:05:

The two biggest determiners of yield are (1) how much you have in the deal and (2) how long the term is. For both figures, less is more – the closer you can get your investment to zero, the closer to infinity your yield will be, and the sooner you get your money paid back, the more “present” the value of that money is. Much easier to make a 100%+ yield on a $1500 investment (even at 0% interest) than it is on a $9000 investment.

Selling my note - how does it work? - Posted by Kristine Poe

Posted by Kristine Poe on May 24, 2000 at 23:09:35:

I have been following this message board for a few weeks, have now read Lonnie’s books and have been traveling all over my area looking for parks that I can work in. Thanks to everyone for so much free and insightful information!

I have a possible deal on a home for about $9000.00 in a family park (I know it sounds high, but coastal California has a housing crunch and way-out-there real estate prices). I ran a test ad (such a good idea, Lonnie, and thanks, Michelle, for the reminder) this week, got some responses and looks like I have a buyer that can qualify for the park and qualifies with me to buy for $18,500 on five year terms. This potential buyer even knows the the current sellers are asking below $12,000 and she does not care! The terms are everything.

My question is this: If I pull off this deal (or any other in this park) I will have used up all my money. How does selling a note actually work? I assume I am paid some amount per dollar of the loan amount (is there an industry standard for mh notes?) Then how does the note buyer get paid? Does the mh owner send payment to the note holder, or do I continue to receive payments that are due the note holder and pass them on? Also, how mature does a note have to be before note buyers are interested? In my case, the downpayment and maybe a few months is all I would have into the note before I’ll need to sell.

This is such an interesting business, but I keep getting reminded that of all that I don’t know. Any and all comments appreciated. I thank all you for your time–Kristine

Great questions, great answers. Anybody else care to share? (nt) - Posted by Debra G.-VA

Posted by Debra G.-VA on May 25, 2000 at 13:17:18:


Re: Selling my note - how does it work? - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on May 25, 2000 at 11:49:41:

I have written you a private e-mail, but since others are interested, I will post a reply here as well.

You have a few options here :

  1. Get your buyer financed through a MH lender like Conseco. They will require that the buyer qualify. They will check credit and income.

  2. Sell the note you create to a company. Most of these require seasoning and the MH can’t be too old.

  3. Sell the note to a private investor. Maybe some family or friends might be interested. You could check with your local REI club.

  4. Sell a partial on the note. Now you are getting into my arena. I have been purchasing partials on mobile home notes for a while now, and really like the business. It is difficult to tell from your post how much you know about partials, so I will explain.

In your case, you will purchase the home for $9000. I assume that will be cash on your part. You sell for $18500. Let’s assume a $2000 down payment, financing $16,500 for 5 years at 12.75%. Giving your buyer a payment of $373.32 per month. Now let’s say you want to sell a partial on the note to recover some of your cash. Normally, I buy half of the monthly payment for the term of the note. That would mean that you receive the $373.32, then pay me $186.66 per month. For that cash flow, I would normally pay $5259.46. That represents a 35% rate for me. You now have $1740.54 (9000 - 2000(down) - 5259.46) in this deal. For that you will receive 60 payments of $186.66, giving you a return of 128%.

We could also “front load” the payments, where I would receive all of the monthly payment for some time, then you would receive all of the monthly payment for the rest of the term. Since I would be getting my investment back quicker, I normally give better rates for this. Around 28%, depending. So if you wanted to cash out $5500 on that note, I would get 19 payments of $373.32, then you would get the remaining 41 payments.

I don’t totally “cash out” any of my MH investors. This ensures that the MH investor has a vested interest in keeping the note performing. You understand, I am located across the country in Georgia. I do not want to travel to California just to repo a mobile home. You would be responsible for any payments to me. If the mobile home needs to be repossessed, we can talk about stopping payments until it is sold again.

If you are interested, just return email with the specifics of the deal, and we can work something up.

Re: Selling my note - how does it work? - Posted by Michelle-NEB

Posted by Michelle-NEB on May 25, 2000 at 08:23:58:

Kristine…hey, sound like you’ve found one! Excellent question, I’ve been wondering exactly how selling a note works myself. With the help of the experts we’ll learn about this one together.

Good luck…sounds like your first deal is on the way!

Michelle :slight_smile:

Re: Selling my note - how does it work? - Posted by Kristine

Posted by Kristine on May 25, 2000 at 12:44:08:

Tim, thanks so much for your reply. I have a few more questions. In order to work my first few deals so that they are attractive to investors like yourself, I am wondering about the following:

  1. Is interest essential? And if it is, is 12.75% what people like you are looking for? I am generating buyers here by building the profits I need into the sale price and stating “no interest.” It seems to be getting attention. On a note over $15K, that kind of interest really changes the monthly payment on a 5-year note.

  2. Is there some kind of formula you are looking for in regards to note amount vs. length of term. For example, is a 15k note over 7 years too long?

  3. I am dealing with pretty old homes here. (Early 70’s). Their only value is in the context of this housing market. So, when someone like yourself gets involved in a deal, the only real collateral you have is my ability to keep a buyer making payments. How risky is that? You’ve been doing it for awhile, so I assume it must work in your favor.

  4. What kind of buyer credit are you looking for, or is my credit the thing that gets scrutinized?

  5. I am assuming well-seasoned means a tried-and-true payor history, with a substantial portion of the note paid down. Do you buy new notes?

  6. Please forgive my ignorance: if I am “responsible for the payments” does that mean that I continue to collect on my note with the buyer? And then I have a note with someone like you, with different terms for which I am the payor?

Thank you again for such a clear, thorough explanation of mh partials. Your help is making it possible for me to figure out how to proceed.



Re: Selling my note - how does it work? - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on May 25, 2000 at 13:16:29:

One thing I forgot to mention. If you go with zero interest, it will greatly affect your return. Say you purchase for $9000, sell for $18500, 2000 down, $275 per month for 60 months. You have $7k in this deal, your return is 40.8%

If you had the standard Lonnie interest, 12.75%, your payment would be 373.32. Your return would be 60.68%. So yes, there is a big difference between charging interest and zero interest.

Interesting what you can find out when you sit down and play with your financial calculator isn’t it?

Re: Selling my note - how does it work? - Posted by Tim (Atlanta)

Posted by Tim (Atlanta) on May 25, 2000 at 13:10:34:

I can only speak for myself, other investors or companies will do things differently.

For #1, I don’t care what interest you charge. I used the 12.75% in the example because it is the Lonnie standard. I believe that Lonnie mentions the zero interest idea in his book. It seems to get peoples attention. You understand that with no interest, a whole note buyer will give you much less, since the payments are lower. I would also pay less for the partial, since the payments would be lower. In our example of financing $16500 over 5 years, the payment would be $275.00 per month instead of $373.32. If you halve the 275, you get $137.50 for 60 months, and using the 35%, I would pay $3874.30 for that. Makes a pretty big difference doesn’t it?

For #2, I normally don’t buy partials for the whole term of the note for any note over 5 years. That doesn’t mean that I won’t buy a partial on the note, I would just want to front-load the payments. That is, I would take the first X number of payments entirely, instead of splitting the payments over the whole term.

For #3, the risk is the main reason I charge 35%. I am counting on the integrity of the MH investor, not entirely on the MH buyer. I have been burnt once or twice, but that doesn’t happen often. The risk is the main reason that larger finance companies won’t do these type of deals.

For #4, your credit and the buyers credit are both looked at, but I don’t worry too much about credit.

For #5, new notes are practically all I buy. If your note is seasoned for 6 months or a year, I would recommend that you sell it to a finance company. They would pay you much more for a seasoned note.

For #6, you will be collecting payments from the MH buyer just like always. You and I would have an agreement called an Assignment of Partial Interest. This agreement looks just like Lonnie’s note. It specifies how much per month you are to pay. You make the payments to me. I normally place a lien on the MH to protect my interest.

A different way of looking at a 0% note - Posted by Debra G.-VA

Posted by Debra G.-VA on May 26, 2000 at 07:06:32:

Both of my first deals I offered 0% notes. And in both deals, my yields are over 100%. Just because you offer 0%, doesn’t mean that you have to lower the monthly payments. Let me give you an example of my current deal:

Investment: $2,800 Down payment: $1,000 Remaining investment: $1,800. Purchase price: $5,500 Loan amount: $4,500 They offered to pay $300 a month. At $300 and 0% interest, they would have $4,500 paid off in just 15 months. My yield is 174%. At $300 and 12.75% interest, they would pay it off in 16.4 months, and my yield would be 180%. So for me, offering 0% is no great loss, and helps to market the home.

Now, I suspect it would have a much greater impact when you have a larger amount invested in the home, and a note with a longer term. Just don’t think that you have to lower the payments because of 0% interest. You might offer 0% if their monthly payments are over a certain amount (that’s how I worked it). Of course, you still have to make sure they can afford that payment (a common rule of thumb is for lot rent and home payment to be no more that one week’s income, OR what they have been able to consistently pay for rent over the last couple of years).

Have fun with your calculator! You can often find several different workable options for your buyers. And I really support other investors’ suggestions of letting the buyers offer their payment amounts. (You don’t have to accept them if they are not high enough.) My first two buyers were able to make MUCH higher payments than I ever thought I could get, which really shot up my yield.

Thank you, Tim! - Posted by kristine

Posted by kristine on May 26, 2000 at 03:01:34:

Thank you Tim for the posts. I am ever so much clearer on notes. I am also pretty clear that I might have to look some more for lower overhead deals. I can probably afford only one or two deals if I am buying mobiles over $7K–even if I sell partials on my notes. Since I want to create a cash stream, I think I need lots of smaller deals. But where? My home state of Michigan never looked so good…Kristine

Re: A different way of looking at a 0% note - Posted by Kristine

Posted by Kristine on June 04, 2000 at 18:19:27:

Debra: I am re-reading your post about 0% interest, after re-thinking interest a little bit. I find the idea of offering the 0% for a certain monthly payment a very good idea. There are a few potential buyers who have called who can pay more per month and their note would be significantly shorter, making my return higher (especially since I have an investor being paid interest). Thanks for the perspective.