Tips for Selling Real Estate Notes for Cash or Investment Purposes
There are many reasons to sell real estate notes for cash. Some people want to be free of financial burdens, while others are looking for a lump sum of cash to invest in additional property or pay off outstanding debt. Some real estate instruments can be sold in whole or in part, such as deeds of trust and promissory notes.
In order to sell real estate notes, specific transaction documents must be created and recorded through the courts. Each time a real estate note is sold, a new note must be executed to record the transaction and assign the buyer’s rights. Other common legal documents used to record note transfers include purchase contracts, sales agreements, and letters of intent to purchase.
The type of document required depends on the type of property being sold. Bank-financed secured mortgage notes are used with residential and commercial properties. Vacant land is secured with land contracts. When sellers carry all or part of the financing, a seller transfer mortgage contract is required.
Property owners who have seller’s transfer of trust deeds can sell the note in whole or in part. This strategy is often used by investors who need funds to purchase new investment properties. Selling the entire note requires investors to transfer the title deed and collect the sale.
Cash flow notes are often used with real estate stock purchases. Real estate investment trusts (REITs) are organizations that own and manage multiple investment properties. Investors often partner with others to purchase expensive properties, such as commercial real estate or undeveloped parcels of land. Investors buy shares and the funds are transferred to the trust.
Investors buying notes need to educate themselves on the many facets of investing. At a minimum, investors should understand state and federal property laws, property management, landlord-tenant laws, financing options, business management, and marketing.
Caution should be exercised when buying or selling real estate notes for profit. While selling notes provides an opportunity to quickly raise cash, this practice is not without its risks. Sellers need to realize that they will not get full face value when selling their real estate contract. Investors typically pay between 50 and 75 percent of the price of the actual security. Sellers are often required to obtain property appraisals and pay title transfer and recording fees.
On the other hand, buying and selling IOUs and land contracts can be a profitable niche. Those who invest time learning the trade can build a strong portfolio of income-producing properties or cash flow notes. People new to investing often find selling real estate notes easier and more profitable than rehabbing homes or holding investment properties used as rentals.
The Internet offers a good starting point for locating investment information. Joining investment groups or real estate forums helps investors connect with real estate agents, mortgage brokers, lawyers, property inspectors, and other investors. People who simply want to sell their real estate note can also use networking groups to find a buyer.