If I offered you a seller financed note on an investment property that is due to collect 100 payments of $400 a month at 8% interest would you know how much to offer? Do you know how much the note is worth?
Here are a Few Non-Calculator Items to Consider with Seller Financed Notes:
The Legit Test: I am sure you know the importance of keeping good notes & records when you originate a seller financed note. It is equally as important when it comes time to purchase a note. Here’s what you should want to see: a copy of the HUD settlement statement, a copy of the cashier’s check from the purchasers down payment, and copies of monthly payment checks. It is best to ask if this information is readily available before you do any calculations on the value of the note. Doing so will give you the opportunity to put the information under the microscope.
The Property Asset: When was the most recent appraisal and inspection done on the property that the note is based on? You want to have a recent accredited appraisal that answers the question, “If I had to take the property back, would it enhance or hurt my initial investment?”
Potential Buyers: Find out as much as you can about the buyers of the property. What is their credit score? What is their job history? Most importantly, can you talk to the buyers? This last question can really tip the scales in your favor because you can use various techniques to increase your return on investment by working with the buyers. The more screening conducted to find out about who you’re working with, the more successful you’ll be.
Calculating the value of a note with Excel or a financial calculator is often the first of many steps towards purchasing your first note, yet, it’s the paperwork behind those calculations that give you the confidence to make the investment, and make it with confidence.