Makes a Note Valuable

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What Makes a Note Most Valuable

What is and is not important in selling a note to a note buyer

Over 30 Billion Dollars of Seller Financed Notes were created in 2022!

Mortgage (Aka Deed of Trust):  A Legal Security Document that  “secures” a piece of real estate to an obligation to repay money (Promisory Note)

Note (Aka Promissory Note, IOU): A Legal Document between a Lender and a borrower, which the borrower agrees to pay the lender back.  It includes the Amount, Interest, Term, Monthly Payment and balloon amount, if applicable.

Land Contract (AKA CFD, Contract for Deed):  A Mix between a Mortgage and a Rent Agreement.  The borrower agrees to pay a designated amount until a determined date.  At which time the deed is transferred to their name.

Sell Your Wrap Note Sell Your Note

There is a lot that goes into calculating an offer on a note. We have been buying Mortgage Notes for over 10 years now.   One of the biggest question we get from Seller Finance Investors is how do I make my note more valuable!  We held a webinar/podcast on this topic as well.

Makes a Note Valuable

The Three big factors:

  1. “Note Numbers” IOU (Loan Amount), Interest Rate, Term & Balloon
    1. We have a “Note Numbers” Financial Calculator
  2. Collateral File, Note Management & Origination (Non- “Note Math” Details)
  3. Risk Level – Calculating potential Default

We have a Discount Chart to show the Estimated Discount needed based on Interest Rate & Term of the Note – DISCOUNT CHART

1)  The Keys to the Note Numbers!

The Note buyer is buying a string of Payments (IOU) so those numbers are extremly important.  Although they are also buying into a debt with the borrower, the “Note Math” is one of the keys to getting the highest re-sale price

Similar to the Lottery, getting money now is less than if you wait for the monthly cash flow for 30 years. Time Value is a calculate to determine a return based on cash being worth less in the future. These factors change the price of the note

Present Value
Interest Rate
Monthly Payment ( Principal and Interest Only)


  • Term – Lower the term increases the value
  • Interest Rate – Higher the interest rate  (within the usury law for your state) increases the value
  • Discount Chart – Check Out our Chart to see the discounted Needed based on Interest of Loan and Desired Yield of the Note buyer

2)  Important Non-“Note Math” Details

  • For Wrap Notes be sure to read our blog!
  • Using a Licensed Servicer to Track your Payments (you can find a list in our Note Investing Resources
  • Work with properties that is in states where debt licenses are not required.
  • Each State has a different foreclosure process and timeline.  Longer foreclosure process = More discounted price.
  • If you are creating a note, be sure you have
    • State licensed RMLO originate the file.
    • If the selling to a Owner Occupied, be sure to have the file Underwritten by a Licensed Underwriter to ensure Dodd-Frank is followed.
  • Be sure you have all the Original (Wet Ink) collateral!
    • Mortgage
    • Note
    • Title Policy
    • If the note has sold, ensure you have all the Assignment of Mortgages and Allonges
  • Land Contracts are worth less than Mortgages/Deed of Trust
  • Ensure the Interest Rate is within the Usury Law for your state!
  • More Down Payment the more secure the borrower.
  • Performing Vs Non-Performing
    • Non-Performing Notes require more discount.
  • 1st Position vs Junior Liens
    • Higher the Lien Position the higher the value
  • Deliquent Government taxes and fees (property tax, utility etc) will reduce the value
  • Table Funding vs Seasoning, The longer the asset has been performing the more valuable it is.  Industry prefers 3-6 months to be considered “Seasoned”.

3)  Note Risk

If the loan stops performing we calculate costs for foreclosing, holding cost and expenses.  This varies from state to state so there is no easy way to present this withouth building out a non-performing calculator.  We do share how to build one in our Advanced Note Investing Training Class.

Sell Your Wrap Note Sell Your Note

Need help, advice, or just want to say hello?   Contact us today.

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5 Steps of Pre-Bid Due Diligence

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