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Is This a Really Bad Time to Sell a Note?

Don’t we all wish we had a crystal ball?  When to buy, when to sell properties, paper, Crystal Ballstocks, bonds, Potassium Iodide… the list goes on.  And the answer is… it depends.  What is your personal situation?

What are your highest priorities and financial objectives?  What are the particulars of your property or paper (note)?  What helps you sleep best at night?

I believe that further depreciation in real estate prices is likely in most areas, and I believe that interest rates and inflation could climb rapidly, potentially changing the market overnight.  It just might be a bit of a wild ride yet, so what’s most important to you?

Here’s a recent email conversation talking about this very topic…

Hi Dawn,

How are you and thanks in advance for your website!

I am presently carrying a note on a townhouse.   It’s not a huge note – $65K original loan amount – and it is performing.  I was hoping to run a few questions by you, before I send you a huge lump o’ papers via FAX:

1) I appreciate your candor.  Would I do better using a local note buyer?

Maybe and maybe not.  If you know someone personally that would be comfortable with this type of investment and its inherent risks at less than a 12% return, then you should strike up a conversation. However, I have seen some of the national players pay more (require smaller discounts) than many private local investors that I know.  Many private note buyers are looking to make at least 12% on their money… usually more.

2) While the note itself is only 4 months old, the payor was previously my tenant and she had a perfect rent payment history (12 mos) as well.  Can this improve the value of the note?

The tenant’s rental history will not help you, and 4 months is not a lot of seasoning.  How much of a down payment did she come up with?  Her credit score and the amount of her down payment (as well as the true value of the property) will be the most important factors in determining the value of your note.

3) I’d like to get an assessment of the note’s value without the payor knowing.  Since you request the payor’s social security number, will she know that something is up by the presence of a new inquiry on her credit report?

I usually quote notes without running credit, but any offer to purchase would be ‘subject to’ the credit coming in at, or above, a certain number.   If you purport that the payor’s credit is higher than it turns out to be, then we’ll have to renegotiate the contract.  Credit will definitely be run after we have a signed purchase agreement in place.  If you just want to know the ballpark of what your note is worth, and don’t want a lot of digging around by a lot of potential note buyers, just pay for an appraisal.

4) Last item… generally speaking, with the real estate market in its’ current state, is right now a “really bad time” to sell a note?

Well, it depends.  In general, we will probably see more depreciation, and once a buyer/payor is upside down (the note balance is higher than the value of the property) it is very difficult to sell a note at all (at least at a price you can stomach).  Additionally, most of us expect inflation to kick in some time in the next few years, and when it does, that will make discounts much steeper/higher than they are now.

For both property and paper… if you want or need to sell, then sooner is probably better.  You may want to let your note season a few more months and take your chances that market conditions won’t change significantly in the meantime.  A lot depends on your payor and how you put your deal together.

I am in the middle of helping a woman from Louisiana coordinate the sale of her free and clear rental to a tenant… helping engineer the transaction to give her the best possible chances of liquidity if she ever wants to sell all or part of the note in the future.

My hunch is that the best you’ll be able to do is sell a partial, but if you want to discuss your overall needs in the context of all that is going on to make a sensible plan, I do offer private consultation services.

Best wishes,


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