If you’ve considered selling your private note, or an investor thinking about purchasing mortgage notes, one of your first thoughts will be to determine the value of the note itself. How much it’s worth, and how much can you buy or sell it for.
So you’re probably wondering how to determine the value of a real estate note in your target market.
There isn’t an easy answer but in this article post, you’ll learn some of the ways that a note can be valued, to make you better informed to move forward with buying or selling mortgage notes…
How To Value A Real Estate Note For Sale
While not all of these factors will influence the value of every note, it’s important to see how a note could potentially be valued. Probably the best strategy is to get in touch with us and we can help you understand how we value the notes we sell. Reach out to our team by clicking here or by calling (800) 953-2124.
- You can value a note by the amount owed on the note (unpaid principle balance), including both the principal and interest owning.
- You can value a note by whether or not it’s a performing or non-performing note (although the definition of performing versus non-performing varies, in general you’ll find that a non-performing note is one where the person who is supposed to be paying the underlying mortgage is not making payments and paying it back. It’s important to note that non-performing notes still have a value!)
- You can value a note by what position that note has in the capital stack on the property (such as a first position or a second position).
- You can value a note by how much equity is in a note (notes may be equity, partial equity, or no equity).
As you can see, there are many factors that can go into how to value a real estate note for Illinois note buyers and sellers or nationwide for that matter. In some ways, even the economy and the location of the property will play a factor in the value of the note, since houses in some areas might be priced lower than houses in other areas.
If you’re thinking about investing in notes, you also need to remember this: the value of a note is not just the specific price of how much the note costs to invest in, but rather how much value you’ll get out of the note once you’ve invested in it.
Example: Consider two investments – a portfolio of performing notes or, for the same price, a rental property. Different investors may have different opinions on which one is valued higher even if they could be bought for the same price… but the portfolio of performing notes will generally produce cash flow, little or no work while the rental property may require a lot of work to maintain. (Note: this is a simplification for illustration purposes only; of course there are other factors at work here!)