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Real Estate Note Receivables
A real estate "note receivable" is created when a piece of real estate is sold and the owner/seller takes back a mortgage. It is  a document that obligates the buyer (payor) to make payments to the seller (payee) in periodic (usually monthly)  payments. Depending on the state you are located, the three legal documents that accomplish this contract are: [1] a promissory note and deed of rust, [2] promissory note and mortgage and, [3] real estate contract. 

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While a real estate note can be referred  to as a land contract, trust deed, owner financed mortgage, seller financed promissory note, a contract for sale, owner carry back, an all inclusive trust deed (AITD),  etc., the generic term for each of these is a real estate receivable or, more commonly, a "note receivable".

This "note" is essentially an "asset" just like a stock or bond  and like any other asset, it can be sold. While it does carry some risk, depending upon the type/quality of the real estate securing the note and/or payor (credit strength), the marketability and value of the note can rise or fall depending upon such factors as the movement of interest rates, land use changes in subjects proximity, market changes, change in credit strength of the buyer/payor, terms of the receivable, etc.

With the advent of unusually low interest rates, there is little need for owner financing except in rare cases where special financing is needed to help the owner "sell" the property. For example, in cases where a marginal buyer does not have sufficient down payment, lacks ample funds for closing, needs longer financing terms/years  than offered by conventional lending institutions or, needs secondary (second mortgage) owner financing. Obviously, in these cases where there is greater "risk", the quality of the real estate becomes the key determinant in assessing the marketability or value of a note receivable.

Can I sell my real estate note receivable?

Most definitely. As time passes, it may be prudent to sell your note  and receive all cash now instead of having to wait several years to receive the money. If you hold a note receivable secured by any type of commercial or residential real estate, you may list the entire "note" or any fraction of the note on PropEx.com through our Public Listing Service.

Before you sell however, it is important to consider such things as the current interest rate environment, the length of remaining term, likelihood of buyer default, etc.

For example, if you owner financed real estate several years ago when interest rates were much higher than they are now, your note could be worth more.

If your real estate note is secured by land only and the buyer subsequently constructed improvements thereon, the note could be worth substantially more than face value in the looming event of a buyer default.

Of course if buyer default is a strong probability, other factors you should consider include the condition and future maintenance of the property, debt subordination issues, environmental health of the property, change in zoning or land use, new highway projects, etc. to name a few. Under certain circumstances, it may or may not be prudent to sell the note.

If however, you desire to sell your note receivable, most prospective "buyers" will likely offer a price that is below the actual "present value" of the remaining payments. This is referred to as a "discount" and this discount can vary with the quality and durability of the income stream, credit strength of the payor" and/or, the quality of the real estate backing the "note".

In any case, it is prudent to consult a real estate professional to assist you in the valuation of your note receivable. Be cautious of a prospective note buyer who plays on your fears of a delinquent payor or one who offers discounts of more than 20% off the present value of the remaining payments.

What information do I need to post on PropEx to sell my real estate note receivable? 

It is important that you, the "note holder", provide as much concise information as available relative to: [1] the physical and economic characteristics of the real estate securing the note, [2] the payment/delinquent history of the payor, [3] general market trends and, [4] any negative factors or conditions you feel would influence a prospective buyer's decision to purchase your note. This will prevent headaches later on resulting from undisclosed information.

 
         

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