Posted by Michael Morrongiello on March 20, 2001 at 12:06:01:
A Seller financed note will be discounted to a cash payout amount if the seller wants to create immediate liquidity for thier note.
Generally, with a note set up and “tweaked” to optimize its repayment terms, discounts can be mitigated and kept to around the 10% +/- range.Often they are around 5% if there is sufficient give and take amongst the buyer and seller.
The amount of the discount or said another way the actual CASH payout for the note will depend on the interaction of following variables and how they size up with regards to the transaction:
- Condition and location of property
- Cash being put down by buyer
- Financials on the income and expenses surrouding the property
- Current rent rolls
- Buyers overall credit profile
- Buyers current credit scores
- Buyers employment, income, stability on their jobs, etc.
- The starting LTV- Loan to value for the 1st lien seller financed note (the lower the exposure the better)
- The repayment terms, amortization period, note interest rate, balloon or no balloon, etc. for the note instrument
Clearly, this method of structuring the financing to work in conjunction with the seller’s willingness to carry back some of their equity is a wonderful way to provide a significant LUMP SUM cash payout to the seller even though they are being asked to finance you as the buyer.
To cover more specifics, lets talk …
To your success,