YOU MUST READ THIS BEFORE EVEN THINKING OF SELLING YOUR MORTGAGE NOTE!
Before you create or sell your mortgage note, you need to make sure that you are aware of the steps you need to take and avoid some of the mistakes that are made when selling a note.
Many note holders can easily avoid mistakes that end up affecting the value of their note. Luckily, there are certain steps you can take now to ensure that your mortgage note will deliver a maximum investment for you.
Here are a few steps to follow for creating and maintaining a perfect and valuable mortgage note:
- Work with the Right People
It can never be overstated that working with the right people is crucial when engaging in any type of financial and/or investment transaction. Whether you are creating your own new note or trying to sell an existing mortgage note, it is important to have the right professionals in your corner. When you first create a note, make sure to seek the help of a known and reputable title company or real estate note attorney.
This is an investment that is well-worth it in the end, because these professionals know the rules and regulations your mortgage note should follow to ensure you do not violate any federal or state laws.It is always important to make sure laws are followed, financial steps taken correctly, and that everything goes right, as to not compromise your investment.
If you do not seek professional advice, you could make one of those easily made mistakes that some note creators and sellers regret. You could end up selling a note with a weak contract, or even illegal terms, which could make it unsalable without selling at a large discount, which could put you in the red financially. These small things are what ruin investments—but luckily, they are easily avoidable if you know how. By taking the steps in this guide, you can use our advice to connect with the right people and make the best choices for you.
By choosing the best people to connect with first, they will be able to assist in reviewing your note in accordance with local regulations and advise you if some changes need to be made.
- Consider the Terms of the Note
You have likely already thought about what selling price of the property and interest rate that you are seeking to collect on your mortgage note. However, you should also consider the length of amortization, the size of the down payment, and whether or not you want to include a balloon payment. Keep in mind that the quicker the money is compounded, the more valuable your note can be.
A large monthly payment amount (we will call it a mortgage) that is paid to you—or a shorter amortization with a balloon payment, are very valuable in the eyes of a note buyer. Of course, you can set realistic terms for the payor (the tenant if you will), on the note. If they are not able to meet the terms and pay the large monthly payment, a sizable down payment can be just as valuable. Negotiating a deal requires knowing how a note works for you as an investment, and the different ways you can capitalize on monthly passive-income as well as the long-term investment benefits.
- Keep Records
This is an obvious piece of advice, but you would be surprised by how many note owners do not keep very good records. The most effective and easiest way of maintaining records is to use a Contract Servicer. These individuals keep track of the note’s balance, the principal, and the interest break-down. They even monitor taxes and insurance. This is a good investment if you want to ensure that your note is in good hands, is being looked after by a competent individual, and that your investment is safe.
If you choose to forgo a Contract Servicer, then you must be very meticulous in recording ALL communications, payments, interest, etc…from your payor. You can do this by keeping copies of the checks or bank statements that reflect the payments with the dates. This provides proof of payment and in cases where the payor stops paying, can prove that payment has desisted. Original documents such as the Promissory note, should also be kept in a secure location. Buying a small filing cabinet that you use strictly for your mortgage note communications, statements, and documents is a good idea.
- Keep your Eye on the Real Estate Market
The real estate market is always an up and down journey, much like the stock market. Changes in real estate marketing will absolutely affect the value of your note—when the market fluctuates, your note’s LTV (loan-to-value) will also change. An ideal LTV is 70% or less.
Even though you don’t have control over the real estate values, you are in control of when or if you sell your note. When the market is up, this is the best time to sell as your LTV will be at its low point and therefore, more valuable to a note buyer. If you have general plans to sell your note, keep your eye on the market and sell when the iron is hot.
- Maintain Good Relationship with your Payor
An honest, open, and ability for consistent communication with the payor of the note will help you protect your investment further. This is a big factor in determining your note’s risk and subsequent value. Building a good relationship and taking time to open communications with your payor helps you in many ways.
For example, maybe a life event such as losing or changing jobs, having a baby, or a medical problem has arisen that has changed their ability to make their monthly payments to you. With a good relationship and open communication, you might discover the solution is as simple as the due date or allowing a split payment each month. Little things like this will help keep the loan in good standing by working around issues that do not have to balloon and become a problem.
These are some of the important steps to follow that will help you in your journey in creating or selling a note. Having an investment like a mortgage note is something that must be maintained, not forgotten. And in the long run, the tips in this guide can help you maximize your profits and make selling your note easier in the future.