Value-Accretive Financing Instruments

Real Estate investments have a finite life cycle and there comes a time when you need to sell your investment to realize the profit of all the value add work you have done as an investor. A value-add investor can add value when selling their property as well in this final disposition phase of the real estate value-add life cycle.

The Disposition segment of the investment life cycle is the last phase where you can accrete cash value from your investment by balancing income buyers biggest concerns and providing them unique value add acquisition financing options.

Real Estate Value Add Life Cycle

Income buyers are primarily concerned with two main things: the amount of capital they need to invest (down payment/equity) and the amount of their net cashflow (NOI – Debt Service Payments). Given these two concerns in mind, you as an investment operator can improve the resale price of your asset.

Traditional Way

A lot of real estate books advise investors to sell their properties at higher sale prices by taking back a mortgage with below market down payment and interest rate terms. Now this is where the value question is subjective as you can technically increase resale price but not value in my opinion.

My view on this topic is that you may have increased price but not value as you have not realized the additional price increase in the form of hard cash in your pocket. Remember cash is king.

Sell to a Note Buyer = Cash. Yes you can sell the note to a note buyer directly or through a note broker to realize the cash. How much cash is the key question?

Note Buyers are a …read more