Paper and notes

What does it mean when people say they buy “paper” or “notes”???

Paper and notes are terms for contracts that people selling their property hold for the buyers…for example:

Seller A has a peroperty worth $100K. He says that he will owner -finance 50%. A buyer can come in with $50K from a lender and borrow the other $50K from the seller for 20 years at 8%. This loan will normally be evidenced by a “note and mortgage”…the seller could then turn around and sell that note – a monthly stream of income – to another person at a discount. In this case the seller might sell the $50K note at 8% to a note buyer for, say $30K cash. The amount will vary depending on the length of the note, the percentage rate, how seasoned it is (i.e., how many payments have been made and/or are left), and the credit-worthiness of the buyer.

You’ll hear the note and mortgage refered to as “paper”, that the seller “held paper” for the sale, and that someone else “bought the paper”.

Hope this helps…