Tuesday, January 11, 2011

Terminology Tuesday - Note Buyers

(Note: I think it's important to know the terminology and words used when learning any new business including mobile home investing. I came up with 'Terminology Tuesday' as a way to go over the terminology used in the mobile home business. It's important to know the terminology when talking to people in the business so you're all on the same page).

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During the course of your mobile home investing journey, you may come across other investors who buy notes (aka Note Buyers). Usually, these folks look for notes to buy for cash to derive passive income and cash flow.

So, why would someone buy notes? Well, usually note buyers would rather concentrate their efforts on buying notes for cash flow than go out and do the work to put "Lonnie" deals together - it's more of a time issue than anything else.

(Note: Finding and putting together "Lonnie" deals do take a significant amount of time).

For me personally, I am constantly receiving inquiries from note buyers and fellow investors. Usually, these people will already be familiar with the mobile home business or know someone who is. A couple of park managers I know work with note buyers and usually bring up the issue when I go see them. And, even some park owners have expressed interest.

Though I am not interested in selling my notes at this time, I do know some fellow investors who choose to do so. But, why?

Usually, it's more of a cash issue. When they run low on cash, they usually sell some of their notes (at a discount) because they need the cash for personal reasons or to raise more money for their deals.

(Note: Personally, I do know a fellow investor who sells half of his "Lonnie" deals (aka notes) to raise more money to do more deals and keeps the rest of them in place).

So, how much of a discount do these notes get sold at? Well, it really comes down to negotiation - what the seller is willing to sell for and what they buyer is willing to buy for.

Most times, I see note buyers start their offers at $0.50 on the dollar based on the value of the note. Though, I've heard of some who offer even less. But, then again - there are others who offer more. At times, I've been offered $.70-$0.80 on the dollar for mine. Again, it's all a matter of negotiation.

(Note: For those looking for notes to buy, park owners are a great source. I've had several park owners contact me asking if I'd be interested in buying their mobile home notes. In these cases, they are usually in need of raising money to free up cash. Usually, it's a good idea to see what exactly they're looking for in terms of a price for their notes. Some will tell you (as one park told me they were looking for at least $0.75 on the dollar), though others may just tell you to make an offer).

Now, if you are interested in selling your notes there is another option - selling partial notes. I had no idea this option even existed until a park manager told me some note buyers she works with are willing to buy partial notes. So, how does this work?

As I understand it, a certain part of the note can be sold (at a discount) - either the first half of the note or the second half. Depending on which half you decide to sell, then the buyer will then start receiving benefit from the note (aka the first half or second half of the note).

Personally, I do not look for notes to buy. I prefer to put my own "Lonnie" deals together. Though, others I know who do buy notes tell me it's more of a time issue for them - they would rather just focus on finding and buying notes already put together than going out and putting them together themselves. There's nothing wrong with that - to each his own.

The way I see it, buying and selling notes is just another option to have in your toolbox in the mobile home business. And, having options is always a good thing.

I hope this "Terminology Tuesday" post has been helpful and has given you some useful information to use.

Happy investing!

p.s. Feel free to leave comments on any post either here and/or my Facebook Page. Comments are always welcome, thanks for reading!

1 comment:

notebuyers said...

You are right that Note Buyers can be a great tool to have in the old tool box. Note buyers can help you free up capital that is tied up into notes. If you are collecting small monthly payments and need to raise a lump sum of cash, a note buyer can be your best friend.

By the way, when you sell off a partial, the investor will be buying the front end of the note only. This lowers the investors risk in the transaction by leaving the note holder with an interest in the tail end. In other words, if the note quits paying, the note holder had better take steps to help get the note current or lose their interest they have! Once the investor has collected the number of payment bought the note reverts back to the note seller along with the remaining payment stream.