Why
do many note holders sell after their note after it was created?
The
reasons are varied but normally relate to the desire of the seller to
collect upfront cash and remove the risk of an uncertain payment
stream over time.
Many
note holders didn’t really want to carry the financing in the first
place and just agreed as a way to sell their property in a timely
fashion or for better price.
Besides
getting upfront cash for the Note, why else would one consider selling
their note? Below are some factors the seller would normally
consider:
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Rising
Interest Rates.
We remain at historically low interest rates.
As interest rates rise, as they inevitably will over the
next few years, the value of the note will decrease because new
notes will be written at higher rates, making mature (existing)
notes less valuable. Furthermore,
what impact will rising rates have on the value of the property
that is secured by the note?
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The
Time value of Money.
Money collected in the future will buy less in the
future than it will buy today because of inflation. A hundred
dollars today is worth a lot more than a hundred dollars ten years
from now.
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Irregular
Payments. Many note holders fear irregular payments and worry about
full default.
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Cash
Now! Many sellers are simply interested in freeing up some extra
cash for another property, a needed vacation, their children’s
education, care for a loved one etc.
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Foreclosure
Issues. The
holder is unprepared or unwilling to foreclose on the property if
necessary because they are uncertain on how to proceed, or they
really do not want to take back the property.
In many cases the note payor is a family member or a friend
that they helped get established by financing all or part of the
purchase of their first home and are not prepared to risk
befriending that relationship by proceeding with a foreclosure. |
