A note buyer is a person or company that pays you a lump sum of cash today for payments you'd otherwise collect over years. If you sold a property and carried the loan, a note buyer can turn that stream of checks into one check.
This article explains how note buyers work, who sells to them, and how to tell a good one from a bad one.
What a "note" is
When you sold your property with owner financing, the buyer signed an IOU. That IOU is the promissory note. It says how much they owe, the interest rate, and the payments.
The note is backed by the property through a mortgage, a deed of trust, or a land contract. If the payer stops paying, that's what lets the holder go after the property.
Together, the note and the security make an asset you can sell, like a rental or a stock.
What a note buyer does
A note buyer looks at your note and asks: what is this stream of payments worth today? Then they make you an offer.
If you accept, they check the details, you sign the papers at a title company, and they pay you. From then on, the payer sends payments to the buyer. The payer's rate and payment don't change.
Who sells notes
- People who sold a home with owner financing. The most common seller.
- Land contract sellers. Common in Ohio and Indiana. See the guides for Ohio and Indiana.
- Heirs. People who inherited a note from a parent. See selling an inherited note.
- Small investors who sold properties on terms.
- Business owners who sold a building with seller financing.
Why people sell
- Paying off high-interest debt
- Fixing up a home or buying a new one
- Helping family with school or a down payment
- Settling an estate
- Being done with tracking payments, taxes, and insurance
- A payer who's gotten unreliable
How a note buyer sets the price
A note buyer pays less than the balance. That's because they pay you today and wait years to collect, and they take the risk that the payer stops.
How much less depends on three things I look at on every note:
- The payer. Do they pay on time? How long have they paid? How much did they put down?
- The property. What's it worth? Does the payer live there? Are taxes and insurance current?
- The paperwork. Was the note drawn up properly and recorded?
Then the numbers: the balance, the rate, and the years left. A higher rate and a shorter term mean more cash for you. Most notes sell for around 70% to 85% of the balance. Strong notes can bring 85% to 90%. Try the note value calculator for a rough range.
Note buyer vs. note broker
Some companies that call themselves note buyers are really brokers. They get your note under contract, then shop it to a real buyer and keep a cut.
That isn't always bad. Sometimes a broker finds a buyer you couldn't. But you should know who you're dealing with. Ask: "Are you buying my note, or passing it to someone else?" A straight answer is a good sign.
How to pick a good note buyer
- Ask how long they've been doing it. Years in the business matter.
- Get the offer in writing.
- Ask who's actually buying.
- Close through a title company or a licensed closing agent.
- Ask what could change the price after due diligence, and how they'll show you why.
- Watch out for big upfront fees. You shouldn't pay to get a quote.
Frequently asked questions
Is selling my note a good idea?
It depends on what you need. If you want cash now or want to be done with the note, it can be. If the note pays well and you don't need cash, keeping it may be better. Read should you sell your note or keep it.
Will the payer know I sold the note?
Yes. They'll get a letter telling them where to send payments. Their terms stay the same.
Can I sell just part of my note?
Yes. It's called a partial sale. See partial note sales explained.
How long does it take to sell a note?
Most sales close in about four to five weeks.
Want to see what a note buyer would pay for yours? Get a free quote. No obligation.
Larry has invested in real estate since 2006 and has bought more than 300 mortgage notes. He runs LJH Investments, LLC, an Ohio company based in Madison, Indiana. More about Larry
This article is general information, not legal or tax advice. Laws change. Talk with your own attorney and tax adviser about your situation.