If you're creating a real estate note, here are some tips to maximize the amount that you would receive if you later need to sell it, as well as help protect yourself if you don't:
 

• Obtain a good down payment. This means at least 15% for a standard house, and 20-30% for commercial properties, land, and mobile homes. These numbers cannot always be reached, so try to get as much as you can without putting the buyer into a financially precarious position.
• If you can, sell to a buyer with decent credit. A FICO (credit score) of at least 650 is preferable, though 625 is usually adequate. You'll often still be able to sell the note even if the buyer's credit is below 600, but be prepared to take a larger discount. Also, recognize that the FICO score does not always represent the buyer's ability and propensity to make timely payments, as they may have a low score due to having a lot of open credit but still be current on all payments.
• Ensure that the interest rate being charged is at least 8% or higher 10% is preferable. Remember, you are not a bank and you are taking on risk to provide financing. Non only will this help make the note marketable to investors, but also incentive for the payor to refinance at a bank at a lower interest at a future date.
• Keep the term of the note as short as possible. Everything else being equal, a 5-year, 10-year or 15-year note is worth more than a 30-year note.

Other items that we consider to be positive when deciding whether to buy a note and how much to pay include:

• Property is owner-occupied (for houses and mobile homes).
• Access to power, water, and roads (for land).
• In regard to commercial notes, multi-unit apartments or general purpose office buildings are easier to place than specialty businesses like restaurants. A note on a property that was previously a gas station or anything that could have adverse environmental consequences will be much harder to sell due to the potential liability.
• The property and surrounding area being in good condition.

You'll also want to be sure that the sales price is not far above the market value (if you might someday sell the note) and that the title to the property is clean. If you have questions about structuring your note, feel free to

contact us

anytime.

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