Flip Tip Summary
If you are buying notes or seller financing houses with the intention to sell those notes…how easy will they be to sell? In this FlipNerd.com Flip Tip, Dawn the “Note Queen” Rickabaugh answers the question: “What makes a good note?”. Check it out!
Flip Tip Transcript:
Mike Hambright: Hi, it’s Mike Hambright from FlipNerd.com and we have a quick flip tip to share with you from Dawn Rickabaugh, the Note Queen, who’s going to share a tip on what makes a good note. If you’ve bought a house, and you want to sell it, finance it, and you’re going to want to sell that note at some point. What makes a good note?
Dawn Rickabaugh: If you don’t want to have a nasty nightmare surprise when you go to sell your note, you got to know what the secondary market is looking for. Makes sense, right?
A bank doesn’t make a loan until they know what Freddie and Fannie are going to buy, so if you know you’re going to want to sell that note, figure out what note buyers want.
Here’s what I’m looking for: I want to see the biggest down payment that that buyer can possibly afford. Why? That gives me protective equity. They have a lot of skin in the game. It’s going to take a lot for them to want to walk away from that property and
I’m buying the note because I want income. I really don’t want the property. If I’m a property manager type, I would have lots of rentals, but I don’t. I like payments on a note. I like just depositing that check in the bank and not having to worry about it too much.
Second thing: get the most money in the shortest period of time that you can. More money sooner is better, which means, without risking the financial stability of the buyer, the borrower, make the shortest amortization that you can.
So, if they can afford 1,200 a month, your notes going to be, so if there’s a 15 year amortization, you’re going to get a lot more for your note, than if you only took 600 a month, and made a 30 year amortization. As much money back in the shortest time possible, okay, so make that short amortization.
Then the interest rate. There are justifications for giving someone a three, four, 5% interest rate, depending on what you’re really after. But, if you think you’re going to sell the note; if you have a 4% note, and I want at least 12% return, can you see how far we are apart? That’s a big discount, right?
So, the higher you can get that interest rate, the closer it approximates the yield that I want, smaller discount. So if you have an eight, nine, 10% face rate on your note and the buyer agrees to it, and they can afford it, that also decreases the discount. So, that’s it. And third-party servicing; don’t be cheap. Hire somebody to service the note for you, it’s well worth it, and there’s many, many companies in your state. Robert Youngs [SP] does a lot of note servicing. Do you know him?
Mike Hambright: I don’t.
Dawn Rickabaugh: Oh yeah, this is just me. You’re not even here.
Mike Hambright: Okay.
Dawn Rickabaugh: Okay. So, there we go, right there.
Mike Hambright: Thank you for joining us for another flip nerd, flip tip.
We’d like to thank our sponsors, RealtyMogul.com and National Real Estate Insurance Group.
To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals, find great vendors to help you in your business, and learn and socialize with other real estate investors, please visit the all-new FlipNerd.com. If you’re not yet a member, you can set up a free account in less than a minute.
Mike: Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
Dawn Rickabaugh: If you don’t want to have a nasty nightmare surprise when you go to sell your note, you got to know what the secondary market is looking for. Makes sense, right?
A bank doesn’t make a loan until they know what Freddie and Fannie are going to buy, so if you know you’re going to want to sell that note, figure out what note buyers want.
Here’s what I’m looking for: I want to see the biggest down payment that that buyer can possibly afford. Why? That gives me protective equity. They have a lot of skin in the game. It’s going to take a lot for them to want to walk away from that property and
I’m buying the note because I want income. I really don’t want the property. If I’m a property manager type, I would have lots of rentals, but I don’t. I like payments on a note. I like just depositing that check in the bank and not having to worry about it too much.
Second thing: get the most money in the shortest period of time that you can. More money sooner is better, which means, without risking the financial stability of the buyer, the borrower, make the shortest amortization that you can.
So, if they can afford 1,200 a month, your notes going to be, so if there’s a 15 year amortization, you’re going to get a lot more for your note, than if you only took 600 a month, and made a 30 year amortization. As much money back in the shortest time possible, okay, so make that short amortization.
Then the interest rate. There are justifications for giving someone a three, four, 5% interest rate, depending on what you’re really after. But, if you think you’re going to sell the note; if you have a 4% note, and I want at least 12% return, can you see how far we are apart? That’s a big discount, right?
So, the higher you can get that interest rate, the closer it approximates the yield that I want, smaller discount. So if you have an eight, nine, 10% face rate on your note and the buyer agrees to it, and they can afford it, that also decreases the discount. So, that’s it. And third-party servicing; don’t be cheap. Hire somebody to service the note for you, it’s well worth it, and there’s many, many companies in your state. Robert Youngs [SP] does a lot of note servicing. Do you know him?
Mike Hambright: I don’t.
Dawn Rickabaugh: Oh yeah, this is just me. You’re not even here.
Mike Hambright: Okay.
Dawn Rickabaugh: Okay. So, there we go, right there.
Mike Hambright: Thank you for joining us for another flip nerd, flip tip.
We’d like to thank our sponsors, RealtyMogul.com and National Real Estate Insurance Group.
To access the most robust social platform in existence for real estate investors, where you can find off-market wholesale deals, find great vendors to help you in your business, and learn and socialize with other real estate investors, please visit the all-new FlipNerd.com. If you’re not yet a member, you can set up a free account in less than a minute.
Mike: Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
