What Is the Value of My Note?

The most accurate answer is... "It all depends...".

Just like you can't determine the actual value of your home until you actually place it on the market and get a sale offer, you can't determine an exact dollar value for a note until some investor has given it a full evaluation.  However, we can always start with a "listing" price and go from there.

In fact, the process is very analogous to selling your home.  It starts with "homes in this neighborhood with X, Y, and Z features go for around $...", then it progresses through "but I have a two-car garage and an in-ground pool" which increases it by $....

...then a potential buyer comes along and says "yeah, well I can't swim, but a two-car garage!!!"

...etc, etc, etc... FINALLY! a solid offer! And now we know what your house is worth.

Just like each home buyer has a unique perspective of what are the desired features in a house in general, so does each investor have a set of note guidelines within which he will invest.  And further, just as each home buyer will decide that certain specific features of your house make it worth more or less to him, so will each investor adjust his offer according to the "features" of your note.

But don't worry -- investors have this whole process boiled down so that evaluating an income stream can be accomplished in only a couple of days (and without haggling about curtains).

Evaluating an Income Stream

Your note or income stream is an asset that has a value determined by a number of factors:

• The original terms of the note (i.e. principal amount, interest rate, and number of payments).
  
• The current age, or seasoning, of the note.
  
• The payment history on the note.
  
• The perceived risk to a potential investor of the note.

The first two items are straight-forward and will be fixed at any given time.  At the creation of the note, the terms and payment schedule were established and will not change.

When you want to sell that note to an investor, his single concern is risk, and the level of risk directly affects the return he will require to invest in your note.  There are numerous "things" about your note that will help him determine the risk of your note.  These "things" will vary by the type of income stream and the investor, but are generally related to the original terms of the note, any collateral securing the note (its value and marketability), the number or payments being purchased, and the equity of the payer.  All of these items help determine the potential risk of not receiving the remaining scheduled payments.

Note that the fourth bullet in the list at the top is "perceived" risk.  Evaluation of risk is not an exact science and it will vary significantly between investors because of their individual motivations for investing and how they handle any risks that become real.

It's not a gamble!

With Shore Financing, your note will be presented only to investors whose guidelines match your note.  You can be confident that you will be getting the best price on the market for your note.

Establishing a Sale Price

Once all the risk factors are combined and churned through the investor's process, he will determine a return (i.e. interest rate) that he will require on his investment in your note.  Since the terms of the note are fixed (i.e. the payment amount and number of remaining payments cannot change), the investor uses these values and his interest rate to determine how much to offer you now.