re: guys help me understand seller financed note sales

I want to sell a rental property to another investor using owner financing. I want to offer 0% down for a NOO 30 yr note. Assuming the buyer has good credit (FICO over 620) my question is:

Can I sell the first 15 yrs of the note and how much would the payoff be discounted?

note balance: 85,000
interest: 5.00%
term: 30 yrs (no balloon)
monthly P/I: $456.30

Yes you can do that, its commonly called a partial. Why no downpayment, thats a mistake if you want to sell the note. Also there are many variables of the note that a note investor would use to value the note. So the best way to determine the discount is to contact a note investor. If you need some guidance read “Owner Will Carry” ebook in the free audio’s and video’s in the left column. Herbster


Good to meet you…

I agree with herbster… Why no down? And the interest is too low… Are you selling at value or less? Is there a prepay… Here is a note I use when buying seller financing… Understand that this is a buyer friendly note…

Seller shall finance $. 00, at an interest rate of _______ percent. all due and payable in _____ years following the close of escrow date. The first payment shall be due _______ Days following close of escrow and shall continue every _____ month(s), amortized over _____ year(s) until paid in full and according the terms of this paragraphs. Balance to close, (U.S. Cash, certified or cashier’s check) subject to adjustments and prorations: $.00. TOTAL $________.00 Additional terms of the note are as follows; (i) Borrower will pay a late charge of $15.00 for each and every payment received more than 30 days after it is due. (ii)Privilege is reserved of prepaying the unpaid principal of this note in full or in part at any time without penalty. (iii) This note is subject to Section 2966 of Civil Code, which provides that the holder of this Note shall give written notice to the Trustor, or his successor in interest, of prescribed information at least ninety (90) and not more than one hundred fifty (150) days before any balloon payment is due. (iv) Privilege is reserved and Borrower may, at any time, substitute for the collateral that is security for this NOTE secured by a Deed of Trust. Said collateral shall be of equal or greater value. Value shall be determined by the Borrower. Seller shall execute all documents necessary to substitute collateral upon the request of the Borrower within seven calendar days of request to do so by the Borrower. (v) Privilege is reserved and Borrower may skip one monthly payment for each twelve (12) month period. The mortgage shall be extended one month for each skipped payment. (vi)The holder of this note and mortgage is limited to recovery of the debt evidenced hereby by foreclosure and sale of the property affected by the mortgage securing same. The makers/payors shall not be personally liable for any deficiency resulting from any sale and/or foreclosure hereunder. (vii) If this note is prepaid prior to _______ day of _____________________, 20, then mortgagor shall receive a discount of _________________percent (%) of the remaining balance due. (viii) Privilege is reserved that Mortgagor shall have the right of first refusal to buy this mortgage under the same terms and conditions that mortgagee herein has agreed to sell this mortgage. Furthermore, this mortgage shall not be sold or assigned without the prior written agreement of the Borrower. (ix) The subject mortgage is fully assumable upon sale, transfer, or conveyance of the subject property. (x) The Deed of Trust securing this note shall be subordinate to a subordination agreement which will result in your security interest in the property becoming Subject to and of lower priority than the lien of some other or later security instrument. Subordination agreement shall be recorded and a pre recorded copy of that document is attached as exhibit B. (xi) Each payment shall be credited first on interest then due and the remainder on principal, and interest shall thereupon cease upon the principal so credited. Should default be made in payment of any installment when due the whole sum of principal and interest shall become immediately due at the option of the holder of this note. Principal and interest payable in lawful money of the United States. If action be instituted on this note I promise to pay such sum as the Court may fix as attorney’s fees. This note is secured by a Deed of Trust to _______ trustee of sellers choice.

Good luck


Good advice from my fellow investors above! Definitely do not want to sell No Money Down. Less likely to sell the note to anyone who knows what they are doing. Also, you need to get a Texas Instrument BA II Plus and learn how to use it! If you can find a book online called ‘Invest in Debt’ by Jimmy Napier, it will be most valueable and the best $10 investment you could make!

Selling a partial is always better than the full 30 years. When you learn to use the calculator, you will find that the difference in present value (PV) is only a few thousand dollars between selling 15 years vs. 30 years. Keeping the back end gives you many options including:

  1. first right of refusal to buy back in event of default from buyer.
  2. cash windfall profit when property sells.
  3. another sale of the back 15 years on the note at a high price (in 15 years) and it will have 15 years of seasoning, which will get you a higher price too!!
  4. In event of default, you can buy back at the balance due of the partial note that was sold, resell the property at full price and receive another major profit.

I just did that recently. Sold a mobile home and land package for $44k with $3k down. The property only cost me $25k. Sold 20 years of a 30 year note for $28k. That left me with $6k in profit ( down payment and proceeds of sale from note after cost) and a secured interest in the last 10 years of the note. Many years later, the owners defaulted and the note buyer foreclosed. They call me 1st to ask if I wanted to buy it back. There was a $20k balance owed to the note buyer (round figures). I inspected the property and told them yes! Put an ad in as a ‘handy man special’ and sold it for $29k in less than 2 weeks. Used the proceeds to pay off the note buyer and pocketed $9k!

Always keep back ends of notes and learn how to use a cash flow calculator…it will earn you lots of money!

Hope this helps.

R.E. Investor/Mentor


Thanks for all the great advice! I’ve read the owner will carry ebook from this site and it is probably the best real estate freebie I’ve gotten so far. I’ve also ordered the Invest in Debt book from Jimmy Napier. Waiting for that to arrive.

I’m starting to wonder if I could go another route with this. Perhaps instead of selling, I could approach a note buyer on a forum like papersource and agree to do a refinance out of my conventional loan into note held by a private investor. I might get better terms that would improve my cash flow with this property.

Is this reasonable or fantasy?

Really do not understand your question ‘How much would the payoff be discounted.’ However, Here is what you have:

360 N 5% i/y $456.30 PMT $85,000 PV

if you sell the first 15 years of payments at a discount to yield 12% to an investor, you have:

180 N 12% i/y $456.30 $ 38,019.54

           10%                      $42,461.96  (at 10%).

In 15 years, you still have 15 years of payments. This is what remains (in 15 years) that you would still own:

180 5% $456.30 $57,701.32

In any event if the home sold during the time of the 1st 15 years, there would be a discounted payoff that you would receive as you would still have a secured interest in the back half of the mortgage where you sold the front half. The longer it takes to resell, the more your payoff would be as that back grouping of payments would in crease in value the more it comes closer to a present value.

The other consideration is that if the new owner of the home defaults and the mortgage is foreclosed by the investor who purchased the first 15 years, you would have 1st right of refusal to pay them off and own the property outright again to resell.

That happened to me on a mobile home and land package where I sold the front 20 years of a 30 year mortgage. About 8 years later, they defaulted, the mortgage company foreclosed, called me and offered it to me at a $20k payoff. I went to inspect the property, and accepted the offer, advertised it for $29k as a handyman specila, sold it in less than 2 weeks, closed and pocketed $9k. When you sell a mortgage, NEVER sell the whole thing. The difference in the proceed of selling the whole mortgage vs. 15 or 20 years of a 30 year mortgage is only a few thoughsand dollars and not worth the possibilities of additional profits later on in the even of a sale or default.

All of this is covered in Jimmy’s book, Invest in Debt. Also, if you really want a special course, see if yo can find Jimmy’s cassettes on negotiating. Those cassettes made fortunes for me over the past 20 years.

Lastly, I would agree with Michael Q and my other colleages…don’t sell with no money down! EVERY deal I have ever sold with less than $3k down was a problem deal…and those were cheap houses…the more your down payment the more likely it will be a success.

Hope this helps.