There Are Several Important Factors to Consider When Selling Your
Real Estate Note may never be worth more than it is today!
Time Value of
A dollar just doesn't go as far as it used to; and of course, we all know money does not grow on
trees. The fact is money decreases in
value over time.
Today you buy a lot less with a $20.00
bill then you could 30 years ago..... in 1982 the Average Monthly Rent $320.00; Cost of a gallon of Gas $.91
cents; New Car Average price $7,983.00; US Postage Stamp $.20 cents! (those were the good old days).
That's the reason why a lump sum today is worth less than payments 30 years
from now... it's called the time value of money. It's also the reason why the payments from your note are
discounted; a payment received 10 years from now does not have the same buying power the cash you receive
So what's the bottom
When creating a seller financed note remember you
are not an institutional bank or mortgage lender with depositors at 2%
interest! If they want a low-interest loan there is a bank on nearly every corner. If they want you to finance
their purchase, the interest-rate should be compensatory with the risk. Remember,
YOU have a cost of money; even if there is no underlying mortgage, your cost of money is the cost for you to
replace (or borrow) the money you are lending them in the form of equity. Never lend money for less than you can
borrow it for.
Additionally I recommend you don't make the term too
long, if you do a 30 year amortization, it might be advantageous to require a balloon payment in 7 to 10 years.
This gives the buyer sufficient time to improve their credit, build up equity or possibly sell or refinance;
generally long before the balloon payment comes due.
You as a note seller are not forced to take a 30
year discount on a note that may well pay off in two to five years.
If you have already created this low
interest long-term note, this is an excellent example of why you should consider a partial
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