What is a Real Estate Note?
A real estate receivable 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 receivables are 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). In these transactions, the property seller is simply deferring to the future a portion of the purchase price not paid at closing. It is clear then that these transactions are not loans. The entire transaction involves no third party bank or other lender and no money is exchanged for the unpaid purchase price. Historically this was called seller-financing or owner-financing, but some people now prefer to refer to these transactions as “installment sales” to further distinguish them from loans. 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 (aka Contract For Deed, Land Sales Contract). The generic term for each of these is a Real Estate Receivable. For convenience, we refer to all real estate receivables as “notes.” 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.
Why would I want to sell my future payments?
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.
For a more detailed discussion on why people sell their notes, follow this link for an exerpt from the Note Holder’s Handbook.
How long will it take before I have my money?
We have purchased notes in as little as one day; and it has taken over a year to purchase others. 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.