Note Purchase Examples

Seller Financed Mortgage Notes can be created and sold in a variety of ways . . . to accommodate a variety of seller / buyer needs and circumstances. While a Full Purchase will net the most lump- sum $$$ right away, at closing . . . a Partial Purchase will often provide a larger net some of money, with some cash right away and some cash later!


Example of Full Purchase

The Sales Price is $100,000

10% Down Payment = $10,000
1st Mortgage Note is $90,000 . . . @10% interest / straight 360 month amortization / No balloon Monthly payment on this note would be $925.75

Assuming payor has "A" Credit we could purchase this note for approximately $85,500.

The note seller will net a total of $95,500 at closing (i.e. $10,000 Down + $85,500 for the note).


Examples of Partial Purchase

Let's assume that the seller really only needs about $60,000 in cash right now (perhaps just enough to pay off a small existing 1st Lien and get a new car).


Purchase Option I . . .

Using the same numbers and note structure as in the full purchase example above . . . we can buy the first 90 monthly payments for approximately $50,500 cash. In 90 months, after the 90 payments have been received by the investor . . . the payments revert back to the seller who collects the next 270 monthly payments of $925.75 / month.

Here's how the seller makes out with this option: Seller collects:

  1. $10,000 Down Payment
  2. $50,500 for sale of first 90 payments
    $60,500 = Cash now . . . plus
  3. $249, 952 in future monthly payments over the span of the 270 remaining months. Assuming the owner does not refinance, the seller nets more than $300,000, over the course of the loan, for a property that sold for $100,000. A great deal for someone who wants cash now and a continuous income stream later!

(And when payments revert to seller in 90 months, he can always sell the balance of the note . . . or another series of payments . . . if again he wanted lump-sum cash.)


Purchase Option II . . .

Let's assume that the seller wants / needs about the same amount of money now, as in Option I . . . but also wants a lump-sum later (i.e. does not want to have to collect 270 small monthly payments when the note reverts back to him at some point in the future). Knowing this, we would suggest that the seller add a balloon feature to the note, requiring the balance of unpaid principal be paid in a lump-sum payment, in 7 years (84 months). The deal would now look like this:

Sale Price is still $100,000 . . . $10,000 (10%) Down . . . Seller Financed 1st Mortgage Note for the same $90,000 . . . @10% interest / monthly payments based on 360 month amortization (so payments are still $925.75 / month) . . . plus a balloon payment of $86,635 due in 7 years (after the 84th payment has been made).

In this case we might pay $53,000 for all 84 payments + $25,000 of the balloon payment, when it comes due. Here's how the seller makes out in this option:

  1. $10,000 Down Payment
  2. $53,000 for 84 Payments + $25,000 of the balloon
    $63,000 = Cash now . . . Plus
  3. $61,635 in cash in 7 years (balance of the balloon, minus the $25,000 we purchased)

This option provides a total net to seller of $124,635, in just seven years . . . for a property that sold for $100,000. A great deal!

These are just examples, of course, and actual purchase prices are determined by a variety of factors that are discussed in advance of an offer.

The Partial Purchase is an excellent and profitable strategy for a seller that does not need or want all of their money up front. We would welcome the opportunity to discuss your specific needs and property . . . and explore how Temporary Seller Financing can help you sell your property and meet your financial needs. Contact us today!