Investors consider various factors that contribute to the attractiveness of a note before investing in a mortgage note. These factors help determine the potential profitability and level of risk associated with the investment. If you’re looking to sell your note, it’s essential to understand what makes it appealing to investors.
Here are key points to consider:
● Equity Position and Creditworthiness: Investors closely examine the equity position of the property securing the note. A higher equity position provides a cushion in case of default. Also, the creditworthiness of the borrower plays a significant role. A borrower with a credit score above 650 is generally more attractive to investors.
● Probability of Cash Flow: Investors assess the provable cash flow associated with the note. This includes analyzing the monthly deposits, proof of down payment, and proof of insurance, property tax records, and bank statements. A well-documented and stable cash flow stream enhances the note’s attractiveness.
● Borrower’s Role and Personal Guarantee: If the borrower is buying the property and signing as an LLC, it’s crucial to obtain their individual signature and a personal guarantee on the note. This provides an additional layer of assurance for investors.
● Interest Rate and Amortization: An interest rate in the range of 7-10% is considered attractive to investors. Also, a note that is fully amortized over 60 months (without balloon payments) is preferred. This structure offers predictable returns and mitigates the risk of a large payment due at maturity.
● Environmental and Property Considerations: Ensure there are no environmental issues associated with the property, such as EPA regulations or underground oil drum concerns. These issues can quickly jeopardize the viability of a deal. Additionally, verify that the property is not vacant before or after the sale.
● Legitimate Payment Methods: It’s crucial to avoid collecting payments in cash. Encourage borrowers to make payments using legitimate and traceable methods to maintain transparency and compliance.
These tips primarily apply if you intend to sell the note. If you plan to keep the note, you have the flexibility to structure it according to your preferences.
Once you’ve finalized and recorded your note with the county recorder’s office, consider obtaining a free quote for a lump-sum cash payment. Capital Mortgage Notes offers services to buy mortgage notes, providing you with potential liquidity and flexibility. For more information and assistance with selling your commercial note, visit Capital Mortgage Notes. Our experts are ready to assist you through the entire process and help you explore your options for selling your mortgage note.