You Must Document Payment History to Preserve the Value of Your Note
You have to change your thinking. When you take back a note (carry paper, provide seller financing) on a property you already own, you need to put on a different hat. You’re not a property owner, or a property manager any more . . . you’re the bank, and you need to think like one.
On the deed of trust, you become the beneficiary. Perhaps you’re thinking, “Great! I like banker’s hours! And I’ll have the major holidays off!”
And you should be happy about collecting payments on a note rather than rent. It’s a very natural progression for investors to convert their real assets into paper assets at some point.
Because it’s just easier, that’s why. No more toilets, tenants or taxes. But when you’re the bank, you have to keep track of note payments instead of the rent roll.
Why is it important to keep an accurate and verifiable record of when you receive each note payment?
Because when you decide to sell your note, you’ll want it to be worth as much as possible. And the payment history is an important element. I’ll pay more for a note with a well-documented payment history, where there are no late or missing payments.
The reason is this: the better the payment history (and you need to prove it to me), the more confident I am that the payments will continue to come in as expected, (the less likely it is to go into default), which protects the yield, or return, that I expected when I purchased the note.
When note payments are continuously late, it makes me more nervous, and I need a higher return/yield/reward in order to justify the higher risk. When payments are late or missed, it seriously jeopardizes my original investment.
A great way to make sure your note payments are professionally documented is to use a note servicing company. If you want to service the note yourself, then get yourself an amortization schedule and keep track of the payments as they come in. Also, save all your bank statements proving when the note payments were deposited.
If you fax your note to me, I will be happy to provide you with an amortization schedule free of charge.