Well let's get started with the basics. In my previous post I said we would discuss the basics of loan structuring, protecting your interest as a property seller and creating a valuable instrument for resale.
Several times a day I am approached by property sellers looking for advice on how to structure a saleable note. First let me say there is no great mystery to creating a well structured loan that mutually beneficial for all parties involved, the property seller, the potential buyer and last but not least the note buyer.
Certainly the first thing you will need to decide when making the decision to carry a note or loan for a potential borrower is do you intend to keep the loan for your own income or will you at some point want to sell the loan in the secondary market to a note buyer. If you intend to keep the loan forever and know for a fact that you will never want to sell the note on the secondary market or are one of those folks who don't mind taking the property back if the borrower defaults, good for you. However, since most of the folks I work with do eventually plan to sell their note I will begin there.
Prior to getting to qualifying a buyer/borrower let's talk about the property itself. For the purpose of this posting I will be focusing on residential properties and will leave commercial and land type transaction for a later discussions.
If you have not already done so, explore your market area. In other words, know what is for sale in the area your property is located, compare similar properties. What are like properties selling for in your area? Speak with several local realtors and get their opinions on the current market value of the home you intend to sell. Or, better yet take it one step further and get an appraisal or order a BPO on the property you intend to sell. I would personally recommend a BPO. A BPO is a Broker Price Opinion and is basically a summarized opinion of value performed by a local real estate broker, who is familiar with the local real estate market. It will include several local listing and several recent sales of comparable properties. They can be ordered online for typically under $125.00 and are more than likely the same type of property valuation the secondary market note buyer will order to establish property value.
Why you ask would we want to get an opinion of value from a realtor rather than from an appraiser? Well the answer is simple. If the borrower defaults and the note buyer is forced to take the property back, who do you suppose they will call to resell the property for them? You guessed it, more than likely a local realtor and really who knows the market in that area better than the realtors who are listing and selling properties in the area everyday. Here are links to a few reliable vendors you may wish to contact regarding a BPO on your property http://www.bposonline.com and http://www.evaluateusa.com.
Establishing an asking price is a crucial factor in marketing your property and is one aspect that is unfortunately often overlooked or done hastily with little or no research. There can be several drawbacks to a hastily established asking price. Obviously, if the price is too low you could potentially be leaving thousand of dollars on the table. If too high the property may not sell in a reasonable time or even worse you may inadvertently be creating a loan that is upside down out of the gate and severely discounted in the secondary market. Neither of which is appealing to a reasonable property seller.
In my next posting we will discuss the rewards of qualifying your potential buyers.
Until next time,
Damen
