There is no sure-fire or easy answer to the question of when the best time to sell your mortgage note is. When a mortgage note owner sells their note, they typically do so for a variety of reasons, both personal or because it is in their best business interest to do so.
Signs that Selling a Mortgage Note Would be Beneficial:
If Possible, Sell When Note is Not in DefaultSince mortgage owners sell their notes for business and personal reasons alike, the question changes more into identifying when the best time to sell one’s note is.
Ideally, one should sell their mortgage note when it is NOT in default, if possible. An example of a note in default is if the owners stop paying the mortgage payments to the note holder. While nearly any note is sellable, even ones in default, mortgage notes that are in default are sold at a much larger discount, and the seller loses money on the deal. This is because the mortgage note would pose a greater risk to the note buyer.
If there are any concerns that your payer is at risk of future default, it may be a good time to sell your mortgage note before this occurs. This way, you can get more cash out of the note before it is subject to discount due to default.
Sell When You Have the Finances to SellWhen you sell your mortgage note, it is best to do so during a time where you can afford not having the monthly mortgage payments while it is being sold or brokered to a note buyer. This gap is where you will have no mortgage payments, but you also have not been paid yet for your mortgage note.So, make sure you do not need the money for a few weeks, ideally, for at least one month, or four weeks. If you are in need of cash immediately, then selling your mortgage note is not the best way to go about that.
Selling your note is an option that takes three to four weeks to complete and there are several entities/parties that are involved in the process: from title and escrow companies, the appraisers, and servicers. Coordinating the buying and selling of a note takes time and may encounter some delays.
Sell your note before you are in need of the money, or save up money before selling the note, so you have enough to handle your personal and business fees for at least a month. If you are in need of immediate cash, and must sell your note, you could take out a small, personal loan and pay the loan back plus interest, after your note is sold. Interest for small, personal loans are often high, and you must realize that you would be taking a small profit cut from the sale of your mortgage note, depending on how much your mortgage note is worth and how much money you took out with a loan.
Sell When you Have the Time to Sell
Not only is it best to sell your mortgage note when you can afford to do so, financially, but it is important to have the time to sell it as well. This way, you can shop around for different buyers or have your mortgage note broker shop around, for the best deal possible.
Time gives you the ability to negotiate a fair price for your note, rather than being the one desperate to sell—note buyers know how to play hardball when note sellers are desperate to sell and do not have the time to negotiate. Time gives you the upper hand.
Sell When the Sale of your Note Offers a Better Investment OpportunitySelling your mortgage note when doing so can allow you to take advantage of another and better investment opportunity, is simply good business. Since it is a personal investment, you have to be aware of better investments out there or have someone looking for you.
Most notes pay a decent interest rate and they are a good investment since the note holder receives the mortgage payments and can then sell the home at full market value—this investment is for the patient and those who plan on investing and reaping its rewards years later.
If another investment opportunity shows up that could pay you a better return, then this is a great time to sell your note. Many investors use cash from their mortgage note to buy into another investment that will produce them a higher return.
Sell When Your Property Hits the Value Sweet Spot
When your property is calculated to be worth 30% + more than the remaining balance; that is an excellent time to sell your mortgage note. This is the value sweet spot. Make sure to pay attention to your mortgage note’s LTV (loan-to-value).
To calculate the LTV, simply divide the remaining balance by the property’s value. The best time to sell your mortgage note is when your loan-to-value is below 70%.
A high LTV results in a greater discount and therefore, less money in your pocket. With the current real estate market, the condition of the property will also affect the LTV. Although the two factors are out of your control, you can stay informed on the market conditions and take action to sell your note when the time is right. This will require a steady checking of your LTV, so make a note to check it bi-weekly or monthly for your benefit.
Consider Selling a PartialDepending on the terms of your mortgage note, some note buyers will not be able to cash out your full note.
However, a partial could actually be a better option for you. Many note holders actually receive more cash in their pockets over the lifespan of the note by selling a partial. If you are not as familiar with selling a partial note, contact a note specialist to learn more about it. You can also read more about partial note sales here.
Conclusion
So, there you have some considerations to take into account when deciding when the conditions are best for selling your mortgage note. The best time will depend on your financial needs, your time commitments, and your future plans. If it seems like now is the right time for you to sell your mortgage note, begin by getting a free quote. That is always the best way to start the process and determine if it is worth selling right away, or if you should wait it out a bit more for more favorable conditions, if possible.
