Selling Real Estate Note
5 Paper Conversion Bonus Methods

Selling real estate note for cash, also known as converting a note, may put some sellers in a position where they are not able to sell their properties unless they actually receive cash at the closing.  

If you are using one of the methods that does not allow the seller to receive cash, you might not be able to buy the property unless you can show the seller how to convert the real estate note you are offering to cash. Lets take a look at several ways that the seller might accomplish selling real estate note.

Selling Real Estate Note At A Discount, Bonus Method #1

An active market of investors are eager to purchase real estate notes at a discount. While this is probably the least desirable way to generate cash, selling a $10,000 real estate note for $7,000 to $7,500 is not difficult, depending upon its interest rate and term. This process is known as discounting a note.

Collateralize The Paper, Bonus Method #2

The real estate note could be taken to a bank, with whom the seller has a good banking relationship, and pledged as security for borrowing money. While the seller will probably be paying 3% to 4% more for the money than what is being received from you in interest, this way is still much less expensive to generate cash than selling real estate note at a discount.

Use The Paper As A Down Payment To Purchase Real Estate, Bonus Method #3

The seller could use the  real estate note at its full face value to purchase a property. A good example of how the seller could do this is given in method #4, "Using Equity In one property to Buy Another". As earlier discusses, many sellers of property are glad to receive paper that is secured by real estate other than the property they are selling. Once the property is acquired, the seller could use any number of ways to take cash out of the equity in the new property.

Create Multiple Real Estate Notes Using One Note As Collateral, Bonus Method #4

Let us say that you have purchased a property and have given a $10,000 promissory note to a seller secured by real estate that you purchased. If the seller does not need the entire $10,000 or even as much as would be received if the note where sold at a discount, the seller could write a smaller note or even several notes using the $10,000 note as collateral. One new note might be written for $2,000 and sold at a discount of 30% to generate $1,400 in cash. Another new note for $2,000 could be used by the seller as a down payment to buy real estate. The seller would still have the original note of $10,000. $6,000 of that  real estate note would be free and would generate income for the seller. 

Sell The Income From The Note, Bonus Method #5

Most people are aware that when they receive a note, they have an asset in the amount of the note. What most people don't realize is that they really have two assets: they have the note itself and also cash flow that is coming each month or each year from that note.

Assume that you gave the seller a $10,000 promissory note bearing interest at 9%, payable $900 per year. that $900 per year income that the seller is receiving could be sold at a discount, or for that matter, the seller could sell several years of income at a discount to generate cash. This technique would leave the primary assets, the $10,000 note itself, untouched.

The Creative Application of Creative Finance Methods

None of these selling real estate note methods are cast in stone. As a matter of fact, they are meant to stimulate your creative "lets make a deal thoughts". Look at them as the trunk of a tree on which you can add the branches in any form you choose. These methods can be contracted, expanded, and even combined to purchase property. Even though specific interest rates have been used in the explanation of the techniques, you will learn in any negotiation you always start at a much lower rate. In fact, you may want to initially offer the seller a zero interest rate and increase it during the negotiation process. The main objective to provide a win-win situation for all who are selling real estate note.

Selling Real Estate Note to Creative Home Finance