Owning a mortgage note is just like any investment – its value depends not only on the payout if things go well, but also on the level risk if things go sideways. Keep these five things in mind to maximize the value of your note, whether you want to keep the note or eventually sell it:
1. Keep Payment History Organized. Buyers love to see a clean record of on-time payments. Save copies of checks, bank deposits, or servicing statements.
2. Stay Current on Taxes and Insurance. A property with unpaid taxes or lapsed insurance scares potential buyers. Make sure your payor keeps current on these! This ensures that the collateral property is secure.
3. Verify Property Condition. Your payor is responsible for maintaining the property — are they doing it? A well-maintained property backing your note is worth a lot more. Buyers are going to perform at least a drive-by inspection of the exterior condition, if they don’t do a full walkthrough.
4. Use Good Paperwork. This is not the place to save money by crafting note terms yourself, especially if you aren’t familiar with your state laws. Ambiguous terms or missing documentation can reduce or destroy the value of your note. Use an attorney to document your note and secure it!
5. Value Starts When You Create the Note. Get a good interest rate and downpayment! Just because Fannie Mae is charging 6-7%, doesn’t mean that’s what you need to charge your buyer! If they could get a Fannie Mae loan, they should. If they can’t, that isn’t your fault – make sure you get a good downpayment and a solid interest rate. Ensure that your buyer puts down 10%, if not more, and about the same interest rate (10% or so) for the note.
Bottom line: Strong documentation and healthy collateral = higher offers when you sell your note.