Are You Looking to Sell a Real Estate Note? Here Are 6 Tips to Determine Its Value

Commercial real estate notes for sale

Buying and selling real estate can be very complicated. There are different rules, regulations and procedures in place for selling different kind of properties. Commercial real estate notes for sale are very different from finding mortgage notes that are for sale. If you are looking to sell a real estate note, there are some steps you can take to determine its value.

  1. What kind of down payment can be arranged? When considering the value of real estate notes for sale, the first step you need to take is to determine the amount of the down payment. The amount that the buyer will give the seller when the sale is made will be a determining factor in deciding if the real estate note can be sold at all. At the end of the day, the higher the down payment can be, the more the seller can expect to get for the mortgage note. For instance, if the prospective buyer is only able to make a down payment of 5%, the sale will most likely not be possible. A general rule of thumb is that the buyer needs to be able to come up with a down payment of 10% or more for any investors to be interested in buying the real estate note.
  2. How good is the buyer’s credit score? The best thing sellers can do when they have real estate notes for sale is to find buyers with excellent credit. The better the shape of the borrower or purchaser’s credit is in, the more money investors will be wiling to spend to buy the mortgage note. The market prefers real estate notes for sale that are attached to a buyer with stellar credit. The lowest the purchaser’s credit should be is 580.
  3. Get a personal guarantee. It does not matter what kind of property you have to sell or who the person or company is, getting a personal guarantee in writing is always a good idea. This rule applies to commercial and residential real estate notes for sale. It is helpful if you are looking to sell to an individual or are talking to commercial real estate companies. When you have such a guarantee, the sale is considered to be a “recourse” sale. When there is no such guarantee, it is called a “non-recourse” sale. Making the sale a recourse sale can increase the amount of money real estate notes for sale will go for. The person who signs the guarantee should have good credit to make the recourse carry any weight.
  4. Determine your investor yield requirement. When you look at the costs for the investor and weigh in their appetite for risk, you can determine the investor yield requirement. This will fluctuate and vary quite a bit from one investor in real estate notes for sale to another. For most private mortgage note investors, the cost for capital is somewhere between 6 and 8%. When you talk to banks about selling real estate notes, they usually have a lower cost of capital. The problem when you deal with banks is that they have a lower cost of capital but they also make the process infinitely more complicated than the private investor in mortgage notes. It may end up costing more and causing the investor yield requirement to climb to as much as 15 or 20%. This is one reason you need to get several offers before you pick one.
  5. Be careful with the interest rate. It may be tempting to finance the sale and use an interest rate that is lower than what they would get anywhere else. You may have a hard time finding an investor for your note because it can increase their cost of capital. If you can set it this way, setting the interest rate somewhere between 7.5 and 12%, depending on the laws of your state, is perfect.

The processes and procedures that are used for real estate notes for sale are complicated. If you have one that you are trying to sell, you need to do your research and talk to some experts to make the sale successful.

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