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Frequently Asked Questions |
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1. What is a Real Estate Note? A real estate note is a document (or documents) secured by real estate that obligates one individual or company to make payment(s) to another individual or company. These notes are typically created when a piece of real estate, such as a house, is sold. The purchaser gives the seller a cash down payment and the balance is paid to the seller in periodic, usually monthly, installments. Therefore, payments are made from the property purchaser (payor) to the property seller (payee). The property seller provides the financing to the purchaser the same way a bank normally does. This is called seller-financing or owner-financing. The legal documents that accomplish these tasks generally take one of three different forms: Promissory Note & Deed of Trust, Promissory Note & Mortgage, or Real Estate Contract. The payments a property seller will receive from these notes are an asset and like any other asset can be sold for a lump sum of cash. Back to Top2. What is a Second Mortgage Note?An additional mortgage and note on real estate that has already been pledged as collateral for a (senior priority) first mortgage. The second mortgage carries rights which are subordinate to those of the first. Yes, Northstar Services buys first, second and sometimes even third mortgage notes. Back to Top3. Why would I want to sell my Note?There are perhaps as many reasons people sell their notes as there are ways to spend money. We always ask note sellers why they wish to sell their note. The most frequent responses we get are: 1. To eliminate the risk and responsibility in holding the note; 2. To achieve liquidity; 3. To take advantage of other investment opportunities; 4. To pay off debts; and, 5. To make specific purchases. Often people never wanted to carry back a note in the first place but had to in order to sell their property. Other situations, such as notes provided as equity settlements in divorce cases, inherited notes, to name just two, often result in the current note holder owning a note they never wanted. Often these people are happy to receive the current value of their note in cash and move on with their lives. Back to Top4. Why is there a discount?Whenever future payments are sold for cash today the current balance is always sold at a discount. There are two reasons for this: 1. The balance of the loan is paid back to the payee over time--and time erodes the value of money; and, 2. The stated interest rate on seller-financed notes is not high enough to induce investors to purchase these loans. Therefore, to increase the yield to investors, you must sell the cash flow at a rate of return greater than the note rate. You do that by selling the note at a discount from its current principal balance. Back to Top5. How much cash can I get for my note?The amount of cash a note can be sold for depends on three general components: 1. The current economic environment, 2. The terms of the note (payment amount, interest rate, length of payback, etc.) and, 3. The probability that the note holder will lose his/her money (amount of risk). The current economic environment influences the yield or rate of return an investor requires when purchasing a note. In general, the better the economy, the lower the cost of funds for the investor, and, therefore, the lower the yield we require on the investment. Currently we are in a good economic environment as far as interest rates are concerned. Today's extremely low interest rates means more cash for note sellers than ever before--and perhaps, more than will ever be paid in the future. We must examine the terms of the note (#2 above) and the amount of risk (#3 above) individually for each note offered for our purchase. Many people would like us to quote a fixed percentage of the remaining balance on their note. This is not possible due to the large variability inherent in these two components. Back to Top6. Can I sell just part of my note if I don't need all of the cash now?Yes, in fact this is very common. It is referred to as a "partial purchase" and involves selling only a certain number of the remaining payments on your note. At Northstar Services, we can purchase any number of the remaining payments in almost any manner you can think of. For example, let's say you have a note with a balance of $100,000 payable in 240 monthly installments. If you needed just $30,000 now for whatever reason, we would calculate how many payments we would need to purchase to provide you with that specific amount of cash. Precisely which payments we purchase depends on your personal financial situation. Here's a few of the options you could consider: We could buy:
Remember, all of the above options will provide you with the $30,000 needed today. The type of partial purchase chosen will depend entirely on your unique financial situation. In other words, you may choose the first option if you need $30,000 today and want or need to have a future monthly cash flow beginning in 5 years. You might choose the second option if you need $30,000 today and you need a monthly payment for the next 5 years until, say, your retirement benefits begin. And you might choose the last option if you need $30,000 today and also want or need the monthly 50% payment for the next 20 years. There are many other ways we can structure the partial purchase for you. Our goal is to get you the specific amount of cash you need NOW while also addressing your financial concerns of the future. A Note is a remarkable asset when you can intelligently sell your payments to someone like Northstar Services, who is able to provide you with such a rich variety of possibilities. Back to Top7. How long will it take before I get my money?Every note purchase is different but on average, it takes two to four weeks. If the sale of your property and the creation of the note was "typical" then you should have your money within two to four weeks. If there is a pressing need for your money sooner, let us know and we will work with you. Back to Top8. How does it all work?We will verify all aspects of the transaction, prepare all of the necessary documents to make the change, take an assignment of the security instrument (Deed of Trust or Mortgage), receive an endorsement of the promissory note, and then have the assignment recorded in the public records. You need not be concerned with not knowing what to do since we do all of the work-- Back to Top |