Re: Sale of Land Contract

From: Steve Firebaugh <stevef@halcyon.com>
Subject: Re: Sale of Land Contract
Date: Sun, 12 Jul 98 22:30:51 -0700

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>Date: Fri, 10 Jul 1998 15:26:09 -0500
>From: Jerry Conley <jcrev@ncn.net>
>Subject: Sale of Land Contract
>
>I have a land contract at 10% on about $80,000 that I would like to sell.
>It's not a bad contract, but I need the money for other investments. Can
>anyone help me by telling me where to start and who to contact (companies)
>that might want to make such a purchase.
>      Also, can I expect to get all of the principal or even a little more?
>or less? What are some of the problems I might have? How long might it take
>to close on such a transaction? 

Jerry,

Most people do not realize that there is indeed a secondary market for 
the various kinds of real estate secured notes or contracts.  But such a 
market exists consisting of private individuals to firms like mine to 
even a few large companies who deal mainly with brokers. Locating any of 
these buyers will be more involved than the telephone book (they won't be 
there).  Sometimes they can be found in the classified section of the 
paper, and sometimes you can get a referal from an accountant or 
attorney.  

As far as what can you expect in terms of an offer for your note, you 
will have to expect a discount from the balance due with the size of the 
discount dependent on several factors, including: the type of property 
securing the note, the duration of the note and/or existance of a balloon 
payment, the credit of the payor and the payment history on the note. 
Basically, the higher the perceived risk in the note by the investor, the 
higher the discount will be on their offer.  But even if the note were 
judged risk free, the discount will not completely disappear because an 
investor will introduce sufficient discount to avoid a loss should the 
note payor immediately pay off the obligation in full.  (The investor 
generally pays all transaction costs, including title, appraisal, credit, 
etc). Generally you should be selling your note because you have a much 
better use or a stronger need for the money than in collecting the 
monthly payments.  If you do not then I would strongly advise against 
selling it, 10% not being a bad return.

This assumes that you are selling the full note.  You do not mention what 
your investment need is, but one way to minimize the discount is to not 
sell the entire note.  Let's say you need $40,000 for an investment.  
Well, you can easily get that sum out of your note without selling all 
the remaining payments.  We simply need to figure out how many payments 
we need to purchase to get that amount to you.  You then get the $40K 
from us, we collect the agreed on number of payments, then the note 
reverts back to you.  This is called, of course, a partial purchase.  We 
can also purchase, for example, half of each payment, or any number of 
other variations.

After terms can be agreed on and all the documents delivered, closing can 
occur from a week to a month, depending on the speed of the due diligence 
items (title, appraisal, etc.)  Closing can occur in a nearby escrow or 
attorney's office and you can specify that.

Hope this answers your questions.

Steve Firebaugh
stevef@halcyon.com



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