structuring a note - Posted by mark

Posted by john on November 24, 1999 at 09:49:53:

Hold a second for another $2700.00

structuring a note - Posted by mark

Posted by mark on November 24, 1999 at 08:58:28:

I am about to close a deal where I will be carrying financing for my buyer. I do want to sell the note, but my question is the best way to structure the deal to make it appealling to note buyers.

The sale price is 47,000 with 2,000 down @ 9.5% for 25 years. Is it best to structure this way or to break up into two notes (1st and a 2nd)? Also, any special clauses I should put into the sales contract to safeguard myself. I haven’t checked credit yet, but I will since I know that this is a big factor. Thank you for any input!!!

Re: structuring a note - Posted by William, Columbus, OH

Posted by William, Columbus, OH on November 26, 1999 at 23:47:18:

Mark: Too many investors are overly anxious to take the first buyer that comes along and in the process they structure lousy notes (value-wise). Many institutional note buyers have criteria that will not let them invest more than 85% of the value of the property (based on recent appraisal)and, more preferably, 75%. Therefore, to make the note more attractive, get at least 5% down (or more), run credit on the buyer and choose “C” or above rating, if you want to sell to someone with poorer credit then shorten the term to 20 yrs and carry a 2nd. You can put a balloon on it but don’t go less than 7 yrs for safety sake. An example:
2,350 Down (or more)
34,650 1st mortgage
10,000 2nd "
240 mos.
9.5% Int.
322.98 Mo Pmt on 1st
93.21 Mo Pmt on 2nd (only $26.30 more, for both notes, than your example)
As others have stated, the actual appraised value…property location…buyer’s credit will have a strong bearing…but the above note would be attractive to a national investor wanting a 10-12% yield. I have brokered notes like the above for 95 cents on the dollar. After a couple years of seasoning the 2nd could also be sold if desired…whereas the first could be sold at closing with prearrangement with your note buyer.

Re: structuring a note - Posted by MN~Chicago

Posted by MN~Chicago on November 24, 1999 at 19:22:00:


Given that most of the value is in the
front end of the note, with very little
value the further out in time you go,

…plus the stated fact you do not
intend to sell the note…

I’d do two notes. One to sell, should
you or circumstances change your mind,
and one to keep, which would have very
little present value anyway.

The first note could be a $30,000 first
over 10 years. You could structure it with
two-thirds of the payments between the total
notes going to the first, until it pays off.
Then all the payments go to the second,
which becomes a first.

Play with the numbers, and see what might
work for you.

Re: structuring a note - Posted by DanM(OR)

Posted by DanM(OR) on November 24, 1999 at 09:59:49:


You are best to find your buyer first and find out what they will buy. Most will not Invest more than 85% of the value of the home. Some will not buy a note for more than 85%(LTV).That being said, that means you would be able to get up to $39,950 if everything was perfect. Closing costs not included.

Another thing, they usually like to see at least 5% down from the buyer. So, you are close there.

Here’s a possible run at your deal:

Sales Price = Fair market Value = $47,000
Down PMT = $2,350 (5%)
1st Trust Deed Note = $39,950, for 300 Months at 9.5%
PMT = $349.04
You could realistically sell this for at least 30-33,000 depending on your property, payor credit, etc.

A partial may work better for you where you sell sy 48 payments for $10k-$12K and then get your note back with about $38,000 remaining on the balance.

It just depends on your goals. Find your buyer, find out what you can get, and decide what your goals are.

I could help you sell if you want or just contact American Note here.

Dan Matejsek
djm@ (No Spaces)