THIS INFORMATIVE REPORT WILL PROVIDE
YOU WITH MUCH USEFUL INFORMATION
ABOUT SELLING YOUR MORTGAGE NOTE 
OR TRUST DEED

WE ENCOURAGE YOU TO PRINT OUT THIS REPORT AND READ IT AT YOUR LEISURE

    CONTENTS


  1. THE BIG QUESTION
  2. VALUE FACTORS
  3. TERM OF THE LOAN
  4. INTEREST RATE
  5. POSITION OF THE LOAN
  6. BALLOON AMOUNT DUE
  7. CLAUSES IN THE CONTRACT
  8. VALUE OF THE PROPERTY
  9. LOAN-TO-VALUE RATIO
  10. FIRST-TO-SECOND RATIO
  11. CREDIT OF THE PAYOR
  12. TIME VALUE OF MONEY
  13. THE REAL DISCOUNT
  14. SELLING A PORTION OF THE REMAINING PAYMENTS (Known as selling a "Partial")
  15. RISK VERSUS REWARD

    Mortgage and Trust Deed Secrets for Super Profits $$$


  16. Copyright 1999 by Diversified Resources Inc.
    Do I Have to Sell My Note at A Discount? ..... What is the "Time Value of Money?"..... What Determines How Much I Receive For My Note? .... please read on for the straight answers to these questions and many others concerning the valuation of Mortgages and Trust Deeds

    THE BIG QUESTION

    The most frequent question we receive from people interested in selling their note goes something like this ......"I've got a $35,000 note paying $270 a month. What's my note worth?" Since most people understand that notes are sold at a discount, a common variation of the above question is "Is it true that in order to sell my note I'll have to take a 30% discount?" By way of explanation, assuming a person had a $100,000 note, a 30% discount would be $30,000. This would mean they would be selling their note for $70,000.

    Whichever way they ask the question, we always feel bad because we can't give a quick answer. Actually, the selling price depends on many factors. And....... no, there is no such thing as a magic 30% discount. Actual discounts range both above and below that figure. We then tell them that if we can look at the particulars of the note, we can make a quote. Boiled down, we make a quote that takes into consideration the value factors of the loan. One of these factors that bears special explanation concerns the "time value of money." Understanding these factors, you will have a tremendous advantage when you sell your note. Just as with automobiles, people who understand the rules of the game do get better deals.

    THE VALUE FACTORS

    The major factors that determine the value of a note involve the term of the loan, the interest rate, the position of the loan, the balloon amount (if any), the amount of the payment, clauses in the contract, the value of the property, the loan-to-value and the first-to-second ratios, the credit of the payor, and the time factor. The value of a note is affected by all these factors simultaneously. They are interdependent -- that is, each one affects and is affected by all the others. These factors all involve either risk or time, the two primary concerns of Mortgage or Trust Deed investors. If some of these terms sound confusing right now, don't worry. You'll be an expert after reading this report. Also, regardless of the value of the note you now hold, if you ever write another one, you can write it in such a manner so that its value is significantly higher.

    THE TERM OF THE LOAN

    Because of the time value of money, one of the first questions we ask is how long your note runs. If you utilize our services in selling your contract, you will be receiving all or some of your cash immediately. We, on the other hand, will have to wait for payments during the remaining term of the original contract. The longer we wait, the less value (buying power) the money has for us. Immediate cash is more valuable than money in the future. The section on "The Time Value of Money" covers this in depth. As illustrated in the following examples, it will take a lot more money in the future to buy exactly the same thing you are buying at today's prices.

    THE INTEREST RATE

    All things being equal, the higher the interest rate, the higher the value of the note. Many sellers have made the mistake of offering more liberal (lower) terms than the bank. The reasoning is that since they have no overhead, a lower rate is justified. However, the more competitive or higher the interest rate is, the greater the value of the note.

    THE POSITION OF THE LOAN

    Though there are notes written in third, fourth, and fifth position, most individuals who sold a home either carried back a first or second position lien. If you hold the entire purchase money loan, you hold a "first position." For example, you sold your home for $129,000, the buyer put down $29,000, and you took back a "first position" note for $100,000.

    A second position lien is behind the first, or "senior" lien. Using the same example, let's say the buyer was able to get a $100,000 loan from Any Name Savings & Loan Association, but only had $9,000 to put down. You might then carry a second behind the first. This would look like:

    $100,000 amount financed with Any Name S&L (First Position)...... $ 20,000 amount financed with you, the Seller (Second Position)....... Less $ 9,000 amount of cash down payment....... equals $129,000 sales price of home. A first position note / Trust Deed has significantly more value. This is the reason why the bank is holding the first, and the seller is holding the second.

    THE BALLOON AMOUNT DUE

    If a balloon payment is due, when is it due? Again, if it is far in the future its value is diminished. Likewise, however, if the balloon date is rapidly approaching, and it looks like the payor may have a difficult time coming up with the money, its value is diminished.

    CLAUSES IN THE CONTRACT

    Certain clauses a note may have or not have can also influence the value of the note. For instance, is the note due on sale? Is it assumable? A note with a due on sale clause is more valuable, because, even if the present payor has perfect credit, the next purchaser of the house may be a deadbeat. This is a risk that every note holder of an assumable note faces. If the note is nonassumable, however, the purchaser of the note knows that they will be able to accept or reject the next purchaser of the property. Then they are only relying on a quality payor.

    THE VALUE OF THE PROPERTY

    What type of property is security for the note? Single family residences are the most secure. During hard times people walk away from farm, commercial, and investment property. Much of the fault, for instance, of the savings and loan crisis of the 1980's stemmed from over investment in commercial properties. The location is important, also. Is the property in a decaying neighborhood, a stable neighborhood, or a developing neighborhood?

    THE LOAN-TO-VALUE RATIO

    Two other important points are at issue here, both of which, may be familiar to you. Any investor in Mortgages or Trust Deeds wants to know the value of the property in relation to the amount of loans on it. When we make an accepted agreement to purchase your contract, we will have an appraisal done. The lower the "loan to value ratio," the higher the value of the note.

    For instance, assume a property is appraised at $100,000.

    Loan "A" is for $90,000, with $10,000 equity, for a Loan -to-Value ratio of 90%.

    Loan "B" is for $40,000, with $60,000 equity, for a Loan -to-Value ratio of 40%.

    The person who makes a substantial down payment or who has $60,000 equity (Loan "B") is more likely to continue to make the payments than a person who has $10,000 in equity at risk (Loan "A"). Therefore, the contract with a lower loan-to-value rating is worth more. Foreclosure is not the answer. Would you like to foreclose on someone? A greater investment in the property makes this ugly worst case scenario less likely.

    THE FIRST-TO-SECOND RATIO

    The other ratio that investors look at is the ratio of the first-to-the second. This ratio only applies if the note is in second position. If, for instance, the note is for $4,000 behind a $126,000 note, the first-to-second ratio is an extremely high 31.5-to-1. Unfortunately, this note is unsalable to an investor. Were the payor to quit making payments, the investor in the second would have to make massive payments on the first note in order to protect the security. It is seldom profitable.

    On the other hand, assume there is a $93,000 first and a $65,000 second. Here the first-to-second ratio is a workable 1.43-to-1. An investor would be interested in this second mortgage.

    THE CREDIT OF THE PAYOR

    The payor is also a determining factor of the value of the note. The note buyer will ask where the payor works and how long he or she has worked there. What is the payment history on the particular note you are holding? Do you have bank receipts or deposit slips that verify that the payments have come in consistently on time? If so, the future series of payments that you have for sale is worth more. Is the note current now? What does the payor's credit bureau file look like? All these things affect the value of the note. So you now understand why we can't offer the outstanding balance due. However, get ready to understand ........

    THE BIGGEST SECRET: "THE TIME VALUE OF MONEY"

    What we, the note buyer, do when we look at the value of a series of payments (also called an income stream), is to calculate the present value of the receipt of money in the future. We do this because dollars today will buy more than dollars in the future.

    For a simple example, suppose I have $10 in my left hand and $5 in my right. Which one do you want? Of course, the $10, right? But wait a minute. Suppose I say that, though you can have the $5 now, if you want the $10, you have to wait 10 years. Which one would you rather have now? Of course, you would want the $5. Some of us can remember when gasoline was 31 cents a gallon? People were horrified when it shot above $1.00? Now, if we can get a gallon of gas for less than $1.00 we feel fortunate. Put another way, twenty years ago the value of a dollar was a good three gallons of gas. Today it is less than one. If someone had been buying the future value of gasoline then, he or she would have had to take into account changing values over time.

    Remember. The value of money drops with time. For instance, we recently worked with a property owner who had purchased a house in 1963 for $10,000. Thirty years later, though the house was no longer new, and was in fact in serious need of repair, the property sold for $100,000. Thirty years in the future the amount once sufficient to purchase the entire property, $10,000, is only enough for a down payment. The time value of money is really easy to understand. Due to ever present inflation, a dollar today will buy less in the future. Therefore, the Note Buyer discounts the note in an amount which will keep pace with an estimated amount of inflation over the period of the note.

    Remember that the further into the future a cash payment is received, the less it is worth today. For example, an investor would pay you $300 for $300 to be received today but might only pay $254.30 for $300 to be received in twelve months. If, however , you have a $300 payment due in 60 months, the investor might only offer $131.30. The total cash value for a payment stream is determined by simply adding up the individual "cash value" of every payment. Economic realities and financial prudence dictate that one who must wait for the money must take a discount for that future diminished amount. What we do is calculate the effects of time and inflation on the present value of money that will be received at a future date.

    THE REAL DISCOUNT

    One thing you need to remember when selling a carryback note is the value of the real discount. For instance, a $14,000 price for a $20,000 note looks like a 30% discount. However, assuming a $100,000 home sale, the real discount is not 30%, but 6%. Like a realtor's commission, this discount is the price of the sale. Probably 99% of sellers want all cash. It is the reality of the market place that forces us to carryback real estate notes. Taking this small discount in fact allowed you to secure the sale of the property.

    SELLING A PORTION OF THE REMAINING PAYMENTS (Known as selling "A Partial")

    Sellers, such as yourself, who understand the time value of money, can see the big advantage in selling a part of the note. This part is commonly referred to as a "partial." Assuming you don't need a total cashout at the moment, this arrangement gives you the very best of both worlds. The powerful advantage to this type of arrangement is that, due to the minimal effects of the time value of money, the required discount is minimal.

    The value of a 30 year note diminishes rapidly as you move further out in time. However, if you only sell 3 years worth of payments, you've sold the valuable part, the part that an investor will pay most dearly for. To illustrate this principle, let's say there's a $100,000, 30 year note at 11% interest, with monthly payments of $952.32. An investor might offer $75,300 for this note. This is approximately a 27% discount. As the seller, you end up with $75,300 cash today.

    However, if you don't need that entire amount, you can strike a much more favorable deal. Let's say that you only need $25,000, because you have a business opportunity. You can sell only the next three years of your note for $28,500. Then you have the money you need, plus $3,500 to spare. However, because you sold the payments that are most valuable to an investor, he paid a premium for them. At the end of the three years, the payments revert back to you. Get this! You still have a note with a principal balance of $98,487.33!! If the buyer paid you off that very day you would receive $98,487.33!

    What happened is that you received the $28,500 that allowed you to take advantage of the business opportunity (earning you even more money), plus you still receive the remaining value of your note: You received $28,500 income from the partial sale, leaving a $98,487 remaining balance, for a total value of $126,987.

    Needless to say, because interest is included in the monthly payments, your total dollar return would be much greater. You would receive: $28,500 income from the sale of the partial payments, which is $308,552 ($952.32/mo x 27 years), for a total of $337,052.

    Wait! It can get better! Let's say that you absolutely wanted to maximize your income over the next three years. Instead of selling off the front three years, since that is almost $1,000 a month, you could sell off the back end 27 years of payments. In that case you might receive $56,745. Now look at it: $56,745 income from partial sale + $34,283 ($952.32/mo x 3 years) for a total of $91,028

    The secret of the time value of money offers the note owner many ways to satisfy his or her particular needs. Presented with these choices, note holders seldom have too many difficulties deciding which way to go. Every situation is unique.

    If your note had one, you could also sell off or retain a balloon payment. If there was ever a way to have your cake and eat it too, this has got to be it. You don't have to be victimized by what you don't know any longer. You can put the time value of money to work on your side. When selling your note, be sure to ask for a full purchase quote, and also a quote on a "partial" purchase.

    RISK VERSUS REWARD

    We've mentioned many things that affect the value of a note. Though the time value of money is the greatest, it is purely a mathematical calculation related to "reward," or "profit," if you will. Most of the other issues deal with "risk."

    The position of the loan, the balloon amount (if any), the amount of the payment, clauses in the contract, the value of the property, the loan-to-value, the first-to-second ratios, and the credit of the payor are all primarily risk considerations. It's sad, but, for various reasons, numerous people do not pay promptly or at all on their notes. You may have had some experience with this.

    We at Barclay Associates hope this report will help you to understand the inner workings of the buying and selling of private seller carry back Mortgage Notes and Trust Deeds.

    We hope you will ask us to give you a quote when you are thinking of selling your note.

    BARCLAY ASSOCIATES


How to Contact Us
E-mail: barclay@netcarrier.com
Send us an E-mail with some details of your financing request. It is important to send your: Full name, PHONE NUMBER and a paragraph or two describing your financing needs. Please DO NOT forget to include your PHONE NUMBER.
Phone: 856-278-6103
Alternate Phone: 856-429-4951
Fax: 844-328-4827
Call us anytime 24/7. We are available for one-on-one discussion up to 11 PM Eastern Time and on weekends.

BARCLAY ASSOCIATES - Cherry Hill NJ
MINIMUM LOAN AMOUNTS

  • INCOME PROPERTIES - COMMERCIAL MORTGAGE LOANS- (apartment and office building loans, self storage units, mobile home park financing, strip centers etc. (Not raw land/land developer loans) - $300,000 minimum loan amount. ($375,000 minimum if referred by broker.) Multi-family (apartment buildings) must be 7 units or more.
  • RAW LAND LOANS OR LAND DEVELOPMENT LOANS $600,000 minimum loan amount($750,000 minimum if referred by broker).
  • SBA LOANS-$300,000 minimum loan amount. ($350,000 minimum if referred by broker).
  • OTHER SMALL BUSINESS LOANS (NON SBA)- $300,000 minimum loan amount ($375,000 minimum if referred by broker).
  • FACTORING AND ASSET BASED FINANCING These are business loans using accounts receivable, inventory, equipment & real estate as collateral- $600,000 minimum loan amount($700,000 if referred by broker).
  • OTHER TYPES OF FINANCING NOT INCLUDED ABOVE - contact us for minimum loan amounts.
Copyright 1997-2016 JS Inc./Barclay Associates-All Rights Reserved
Page copy protected against web site content infringement by Copyscape

BROKERS and other intermediaries- WE WELCOME BROKERS. It is EXTREMELY IMPORTANT that you [CLICK HERE] to obtain full information about our referral fee program and our referral fee rates to brokers.
WHAT WE DO NOT DO:
  • We DO NOT finance residential properties-only commercial.

To quickly move around other major areas of our website,
CLICK ON A SUBJECT BELOW:
[Return to Financing Overview Page]
[Commercial Mortgage Loans] [Real Estate Loan Checklist]
[Income Property Loans over $2 million]
[Specialized Financing]
[Doctor, Dentist, Vets] [Business capital] [Factoring]
[Accounts Receivable Financing]
OTHER SERVICES:
[First Mortgage NOTES] [Business Plan Writing]
[The Finance Marketplace] [Small Commercial Mortgage loans]
[Factoring/Receivable Loans] [Business Loans] [PO Financing]
[CONTACT US] [SEARCH our site] [INDEX to Site]
We welcome brokers-for more broker information:
[Brokers Click Here]
FINANCING FOR:
[Apartment buildings] [Office buildings] [Industrial buildings]
[Real Estate Developers] [Healthcare facilities] [Shopping Centers]
[Mini storage facilities] [Mobile home parks] [Hard Money Loans]
[Raw land loans] [SBA Mortgage Loans] [Equipment Leasing]
[Real Estate Development Loans]

Copyright 1997-2016 JS Inc./Barclay Associates-All Rights Reserved
Page copy protected against web site content infringement by Copyscape