Private Party Real Estate Financing is an Option
Creating a valuable financial asset
This article explains an alternate way to finance the purchase of real estate, and a way to creation a financial asset that can provide monthly income at a rate above traditional rates available in today's market. Our discussion is about private party promissory notes used to finance the purchase of real estate. This alternative type of finance has several names-"private party financing", "seller financing" and "owner-carry financing".
You can create this investment (financial asset) by selling a property and not having the buyer borrow from a bank; you can become the bank and earn the interest. Or, you can buy an existing note from a private party who did the financing: you can become the lender, and earn the interest yourself. Mortgage notes (bank notes or private promissory notes) are a major component of every real estate transaction. If you creation or own the note that puts you in financial control of the transaction. At a later date you have the option of selling the note if the need for cash arises, or keeping it for monthly income.
Maximizing the value of the note
Like any item made or constructed, the note's value to you, and to others if sold, depends on how well it is constructed. A poorly constructed note, like a poorly constructed house, is not a very desirable asset. There are several important factors that will enhance value if done correctly, or significantly detract from value if done poorly. The cash you get from your note if you hold it, and how much cash you get for your note if you sell it, depends on these factors:
Borrower
The most important consideration when originating or purchasing a note is the quality of the borrower. Two elements determine the quality of the borrower, (1) having the financial capability to keep the payment promise, and (2) having the right attitude toward the importance of the promise. If the borrower does not have the ability to keep the promise to repay, the value of the note is diminished, regardless of having a positive attitude; and, if the borrower has the financial capability to pay, but does not have the right attitude toward making the payments, the note's value is diminished. Get a credit report on the buyer. Make sure the buyer doesn't have a history of late payments, non-payments, lawsuits, or judgments. Financial capability and personal attitude are the two critical factors.
Collateral
The real estate pledged (by mortgage or deed of trust) is the back-up protection securing repayment if the borrower is unable or unwilling to repay. It is the safety-net. The collateral should have a market value of at least 125% of the loan amount: $100,000 loan requires $125,000 collateral security; stated differently, the loan amount should be, at most, 80.0% of the value of the collateral. Be certain that a sufficient down payment has been made.
Interest rate
The interest rate should be at the least 1.5 X the prevailing bank rate for a similar loan. Example: bank rate is 5.5% X 1.5 = 8.25% rate for a private party real estate loan. The borrower is willing to pay the higher rate because the bank is unwilling to make him the loan; the private party loan is his only option. This rate is fair because the borrower has been labeled by the bank as a "high risk borrower". The private party lender is assuming a greater risk by making the loan.
Conclusion
Providing private party real estate financing to a qualified borrower, supported by adequate collateral security, at an appropriate interest rate is a sound investing strategy. Don't overlook this opportunity!
Lawrence (Larry) Tepper specializes in the valuation and appraisal of promissory notes, mortgage notes, and debt cash-flow instruments nationally for banks, trust companies, self-directed IRA accounts, estates, attorneys, CPAs, and individual investors.
Consulting Services-Free Appraisal Price Quotes
EDUCATION AND TRAINING
Law Degree /Accounting Minor University of Denver
Managing Colorado Real Estate Broker-- Promissory Notes Specialization CCIM)
PRACTICAL EXPERIENCE
35 + years of national promissory note and mortgage note appraisal and valuation for Banks, Trust Companies, Attorneys, CPA's, Estates, Trusts, Executors, Administrators, and Financial Advisors.
How to Get Rid of a Timeshare in Florida At some point, you realize that purchasing a timeshare isn’t always the brightest investment. Some realize it sooner than others.
Thanks for sharing this quality information with us. I must say i enjoyed reading. Will surely going to fairly share this URL with my friends. https://www.jihua-alu.com/article/detail/what-you-need-to-know-about-aluminum-sliding-window-heat-insulation.html
Thanks for taking the time to discuss this, I feel strongly that love and read more on this topic. If possible, such as gain knowledge, would you mind updating your blog with additional information? It is very useful for me. laserontharing den haag
Good website! I truly love how it is easy on my eyes it is. I am wondering how I might be notified whenever a new post has been made. I have subscribed to your RSS which may do the trick? Have a great day! Apkpursue
Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I'll be subscribing to your feed and I hope you post again soon. Big thanks for the useful info. 신규가입머니 즉시지급
Thanks for the blog filled with so many information. Stopping by your blog helped me to get what I was looking for. Now my task has become as easy as ABC. Seven Hints
It is included in my habit that I often visit blogs in my free time, so after landing on your blog. I have thoroughly impressed with it and decided to take out some precious time to visit it again and again. Thanks. Cats like Human Ear Wax
This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. From the tons of comments on your articles, I guess I am not the only one having all the enjoyment here keep up the good work laseren den haag
I would like to say that this blog really convinced me to do it! Thanks, very good post. Queensland Fake Driver Licence
I think this is an informative post and it is very useful and knowledgeable. therefore, I would like to thank you for the efforts you have made in writing this article. glucotrust
Wow! Such an amazing and helpful post this is. I truly really love it. It's so good and so awesome. I'm just amazed. I am hoping that you continue to complete your work like this later on also บาคาร่า ออนไลน์
I think this is an informative post and it is very useful and knowledgeable. therefore, I would like to thank you for the efforts you have made in writing this article. agentes de carga
Document went on your web page at the same time re-focusing only just to some extent submits. Excellent technique for so next, I'll be book-marking instantly catch any carry out springs up. Slot Tanpa Potongan
You there, this is really good post here. Thanks for taking the time to post such valuable information. Quality content is what always gets the visitors coming. Airport transfers
I would like to say that this blog really convinced me to do it! Thanks, very good post. Latest iphone
