How to value a real estate note comes down to four questions, asked in the same order every time. What is left to be paid: the remaining principal, the interest rate, and how many payments remain on the term. Who is paying: the payer's credit, and far more persuasive, a documented payment history with dates rather than a seller's recollection. What secures it: the property behind the note, its condition and current value, and the loan to value ratio those produce. And how it was written: a first position note with a recorded deed of trust, title insurance and a properly executed promissory note is worth substantially more than the same balance documented on a handshake. Those four inputs set real estate note value, and the price offered is the discounted present value of the remaining payments adjusted for the risk each answer exposes. A seasoned first position note with two years of on-time payments at a fair rate on an owner occupied Missouri house sits at the strong end of the range. A brand new note at high loan to value with no history sits at the other. Selling a note with owner financing walks through the paperwork, and you can send us the note terms for an unhurried read.
So you’re probably wondering how to understand the value of a real estate note for Missouri note buyers and sellers. There isn't an easy answer but as local homebuyers in Missouri, you’ll learn some of the ways that a note can be valued, to make you better informed in this blog post.
How To Value A Real Estate Note In Missouri
While note all of these factors will influence the value of every note, it’s important to see how a note can be valued. Probably the best strategy is to get in touch with us and we can help you understand how we value the notes we sell. Reach out to our team by clicking the link below or by calling (314) 334-1481.
- You can value a note by the amount owed on the note, including both the principal and interest owning.
- You can value a note by whether or not it’s a performing or non-performing note (although the definition of performing versus non-performing varies, in general, you’ll find that a non-performing note is one where the person who is supposed to be paying the underlying mortgage is not paying it back. It’s important to note that non-performing notes still have a value!)
- You can value a note by what position that note has in a line-up of mortgages on the property (such as a first position or a second position).
- You can value a note by how much equity is in a note (notes may be equity, partial equity, or no equity).
As you can see, there are many factors that can go into how to value a real estate note for Missouri note buyers and sellers. In some ways, even the economy and the location of the property will play a factor in the value of the note, since houses in some areas might be priced lower than properties in other areas.
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If you’re thinking about investing in notes, you also need to remember this: the value of a note is not just the specific price of how much the note costs to invest in, but rather how much value you’ll get out of the note once you’ve invested in it.
Example: Consider two investments – a portfolio of performing notes or, for the same price, a rental property. Different investors and Missouri home buyers may have different opinions on which one is valued higher even if they could be bought for the same price… but the portfolio of performing notes will generally produce cash flow little or no work while the rental property may require a lot of work to maintain. (Note: this is a simplification for illustration purposes only; of course there are other factors at work here!)
If you want to learn more about notes, interested to work with a broker, find out what kind of notes we have and how we value them, or if you want to sell your house in St. Louis, simply contact us!
