The Absolute Best Time To Sell Your Note
by: Richard Wills
A note investment represents a valuable asset, and the decision to sell can only be answered based on individual needs. It’s a fact that interest rates are now at an all time low, so investors find notes that were financed under better terms more attractive and without a doubt will pay more for the notes. If you plan on keeping your note for the long haul, it is in your best interest to manage it to the best of your abilities.
This means educating yourself, and having a strategy set in place for when the borrower starts paying slow or stops paying you all together. Research shows that around 37% of all borrowers that are 60 days late on their note payments will continue to be late. Also, studies show that about 21% of all borrowers who are 60 days late on their payments will go into default, then foreclosure.
The #1 mistake you may encounter as a note holder will occur if you fail to do your homework at the beginning of the process. If you did an inadequate job in obtaining as much information as possible on the borrower’s credit history, or failed to structure the note for your protection, selling your note should be an option to consider. Also, if you failed to facilitate an exit strategy in the event of changing circumstances, this may also be the best time to consider selling your note.
If you have a hard time keeping tabs on critical dates such as tax payments and insurance renewals, you need to re-evaluate your job as a note holder. Being a note holder is a full time job, because like a job, your note provides you a monthly income. The person who pays you monthly on your note should have a copy of your collection process should there be a late payment or problems making payments according to your agreement. If the borrower provides you with signs that indicate future problems, you may consider liquidation.
It’s a known fact that the majority of note holders really never wanted the note in the first place, and once they realized the inherent risks involved decide to sell. The savvy note holders learn from their mistakes and get out from under a poorly structured note or one with potential problems before it’s too late. There are several good questions you need to ask yourself to determine if holding your note is a good idea, or if you would be better off if you sold it. Here are a few questions to ponder:
• Do you understand the risks involved in holding a note?
• Would you be affected if there were a breach in payments?
• Do you have any debt that you are paying interest on?
• Is the interest on that debt higher than the interest you are collecting on your note?
• How many more payments are due to you, and will you need some cash before the end of the contract?
• What are you doing with the monthly income from your note? Are you squandering the money or do you have the discipline to invest this money into other cash flows, savings, vacation, etc?
© 2005 by Richard Wills
This article was written by Richard Wills, CEO at Charter West Investments. He has written numerous articles and provided financial and marketing consultation to countless individuals and companies over the past 17 years. To learn more, visit: http://www.a-znotebuyer.com
About The Author:
Richard Wills is an expert in private Real Estate Financing and cash flow settlements. He is a former Licensed Real Estate Professional and Bail Agent for the state of California, as well as a noted author and consultant. He has helped 100s of business owners, real estate professionals, attorneys, financial planners, accountants and others, in converting paper assets into cash. To learn more about cash flow assets, please visit http://www.a-znotebuyer.com.
March 2006
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