Contents
What’s a Real Estate Note?
A document(s) that is secured by real estate property which requires a person or company to pay another company or person is called a real estate receivable. This type of document is created when a house or other type of real estate is sold. It works this way – the seller receives cash down payment and the balance is settled within a set duration in form of installments. The one thing you need to know is that this is not a loan and the entire transaction does not involve a financial institution. Furthermore, no money is remitted for unpaid purchase price.
These types of transactions are called instalment sales which help to distinguish between them and loans. A Promissory note & Deed of Trust, Promissory Note & Mortgage or Real estate contract are legal documents that help to complete the transaction. According to experts, payments made by a seller using these notes make them an asset and like any other, they can be converted into cash by selling them.
Why would I need to sell my future payments?
Different reasons make people to sell their notes since the money is required to fund other ventures. Our experts ask note sellers why they need to do so. Majority of responses we get include:
- To remove risk and responsibility for holding the note
- To gain liquidity
- To use for other investment opportunities.
- To settle debts.
- To buy other investments.
In many instances, you will find people lacking the need to sell but they have to in the end. The notes can be provided as settlement in cases like divorce and inheritance. This means that another individual will have a note they did not want. To remove the burden, many people sell in order to have cash. To know more reasons why people sell notes, follow this link:
Why is there a discount?
“How much is my note worth? Or How much will I get for my note?” are the most obvious questions that customers ask us. The worst thing is that the answer is not satisfactory as they would want. When the future payments are made for cash, the current balance is settled as a discount.
Two reasons for this to happen include:
- The payee is paid the balance – which erodes the value of money overtime.
- Investors are not motivated to purchase the loans as the stated interest rate is not high enough for self financed notes.
In order to make them attractive, you need to sell them at a rate of return that is greater than that of the note. To achieve this, you need to sell the note at a discount for the current principal balance. For the government, private note holders and Cascade funding, this is true.
How much money will I get for my note?
This depends on the current economic environment which is influenced by the terms of the note and the probability of the note holder losing the money. When an investor wants to buy a note, the economic environment influences its yield. This means that the better economy, the lower the cost of funds to the investor so it will have a lower yield.
As of March 2015, the economy is stagnant but the interest rates remain low. With low interest rates, it means more cash for note sellers and reduced risk for each note. Majority of people want a fixed quote provided by us especially a fixed percentage of the remaining balance. Two variables make this impossible but in many cases, we are able to evaluate the above components finally making a cash offer for your note while still conversing on the telephone.
Am I able to sell a part of my note if don’t need the cash now?
Yes, you can do so. The practice is referred to as “partial purchase” and it involves the sale of a part of the remaining payments on the note. At Cascade Funding Inc, the purchase of any number of remaining payments is possible in any manner you can think of. For instance, if you have a note with $80,000 balance which is payable in 240 monthly installments and you need $20,000, our experts will calculate the payment we need to purchase in order to provide you with the cash you need. Depending on the purchases we make, it all depends on your personal financial situation. A few options our experts will look at include:
We could purchase (The values are for illustrations only.)
Part of the beginning payments provided on the note. For instance, we may buy the first 60 payments and in turn, you will receive the final 180 payments. A certain percentage of the remaining 240 payments for instance, we might buy 50% of the 240 payments so, you will receive 50% of the 240 payments.
What you need to remember is that the above options will provide you with $20,000 that you need. Unique financial situations influence the partial purchase chosen. This means that one may decide to select the first option if they need $20,000 today and have future monthly cash flow beginning in the next 5 years. You may select the last option if you want $20,000 and you may want the monthly 50% for the next 20 years.
Different options are available which are structured to help you with partial purchase. Our main objective is to provide you with a specific amount of cash that you require now while also being aware about your future financial concerns. What you need to remember is that a real estate note is a great asset which you can sell brilliantly for payments to an investor who is able to provide you with different possibilities.
How long will elapse before I have my money?
What you need to know is that we have purchased notes before with a short duration amounting to one day and other times; it has taken over a year to complete other purchases. The average duration taken is between two to four weeks. You should have your money within two to four weeks if the sale of the real estate property and creation of the note are typical.
How does it work?
When it comes to Deed of Trust or Mortgage, you will receive a promissory note in the end. These are the final steps for selling your note but to get to this point, we have to conduct our due diligence. This means that we have to verify all aspects of the transaction. You don’t have to be concerned as our experts will accomplish everything – beginning with verifying all aspects of the deal to making preparations and recording all documents in order to make the changes.
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