Buy Mortgage Notes
Often times, a seller financed note or carry back mortgages are created to facilitate a quicker sale of a home. This is a big advantage to a seller who needs to move a property quickly.
If the mortgage note is properly structured, it can provide a long-term income flow to the seller. It is important to understand that a carry back mortgage requires your attention and is not low maintenance.
Monthly payments need to be collected
escrow accounts managed where applicable
taxes and insurance must be current and verified
slow payments and mortgages problem need to be handled
filing of the annual 1098 reports completed.
The amount of return received on a note needs to be weighed against the management risks. Mortgage Note Liquidators has compiled a Mortgage Holders Handbook that can help you manage your mortgage note. The handbook also helps explain what is a real estate note.
Another advantage of a owner financed mortgage is in the tax accounting of the sale. The gain on the sale of the property can be realized as an installment sale, thus spreading the impact of the tax burden over the length of the note. Please see your tax advisor for more information on the tax ramifications of owner financed mortgages.
Carrying a note also has some disadvantages. First, instead of getting a lump sum of cash at the sale of your home, you received a small down payment and a piece of paper. That sum of cash is going to trickle in over the next ten to thirty years. Although it is nice in theory, the current balance of the note is not what it is worth today, but what it is worth in payments over the next many years.
Finally, most notes are amortizing loans. What that means is each monthly payment contains principle reduction and interest on the remaining balance. This monthly amount is not reinvested so overtime less and less money is earning the stated interest on the note. Unless you have a strict investment portfolio, which puts the money back to work when it is received, the asset eventually dries up and disappears altogether. Do not underestimate the power of reinvestment for growth of your assets.
For Example: A 20 year bond compounding at 5% monthly with a face value of $20,000 will be worth $54,252.81 at maturity. A 20 year note at 10% will be worth zero in twenty years, but payments of $193.00 will be received for the full 20 years. A total sum received would be $46,320, but this sum of money would trickle in monthly and probably not be in tact as a lump sum at the end of 20 years.
You may not know, that the seller financed note you created when you sold your property or business is a salable asset. You can offer the mortgage note for sale and receive cash for note. You may wonder who will buy my note? At Mortgage Note Liquidators, we are currently buying mortgage notes and can provide a no obligation quote. As mortgage note buyers, we can provide A program tailored to the penny, providing the maximum payment possible.
In summary, carrying a note can be a good way to quickly sell a home. However, many factors, including risk, degree of management, and overall financial goals affect whether keeping the note as a long-term investment is a sound financial decision.
Considering all of these factors when initially structuring the note is important to create a more valuable asset either to maintain in your portfolio or to sell to an investor. Mortgage Notes Liquidators can help assist you to structure the terms of a mortgage note to improve its potential value.
