Know the Value of Your Note
Real estate investment notes derive their value not only from the face value of the note but also from the value of the property to which it is attached. In general, the value of the real estate investment note is based on what someone is willing to pay for the real property and its improvements on the open market. A few things can affect the market value of these notes:
- The position of the lien on the real property will have a significant impact on its value. Simply put, first liens have priority when it comes time to settle debts. In the event of default, a second lien holder can only protect their investment by paying the first lien down. If the first lien has to foreclose, the second lien is vulnerable to loss. ReProp Financial only writes first-lien loans for our investors.
- One exception to this is when property taxes on the property are delinquent. These liens jump directly to the front of the line and are paid out of the collateral first. If the property for which you are holding an investment note is behind on its taxes, your note could be worth much less than it might otherwise fetch on the market.
- The performance of the loan to which the investment note is attached will also play a role in determining its value. For instance, borrowers who make regular payments on their real estate investment notes can bolster their value and make it more likely that the note will sell for more money (a premium).
- Lowest on the value ladder is the non-performing second/junior lien promissory note on a property. These real estate investment notes are usually sold at deep discounts. Their value usually depends more on the performance of the first lien, the strength of the borrower, and the quality of the collateral, than on the actual face value of the note itself.
Who Buys Real Estate Notes?
Private investors and alternative lending companies are usually your best option for selling your real estate investment notes at a fair price. Alternative lenders can provide you with a reasonable estimate of the value of your investment notes and may make you an offer for them on the spot. This can allow you to cash out these elements of your portfolio to take advantage of other investment opportunities and can ensure that you receive the best offer for your real estate investment notes in the competitive financial marketplace.