A partial can raise anything from a modest sum up to an amount approaching the full-sale price of your note. Where you land in that range is set by how many payments you sell and by the yield the buyer uses to price them.
The range on one note
The table shows what four sizes of sale would raise on a note with a $1,140 monthly payment, 168 payments still to come and about $129,400 owed.
| Payments sold | Payments add up to | Cash today |
|---|---|---|
| 36 (3 years) | $41,040 | $36,400 |
| 60 (5 years) | $68,400 | $56,200 |
| 84 (7 years) | $95,760 | $73,100 |
| All 168 (a full sale) | $191,520 | $115,000 |
Illustrative example. The note carries 6% interest and the buyer is pricing to an 8% yield, so your figures will differ with your payment, your payer and your property.
The full-sale price is the ceiling. A partial is a piece of the same payments priced the same way, so it cannot raise more than a buyer would pay for the entire note.
Payment size and payment count
A partial is a number of payments, so larger payments raise more cash for the same number of months. Halve the monthly payment and you would need to sell more than twice as many payments to raise the same sum, because the added ones sit further out and are discounted harder.
The same effect shows inside the table. The first 36 payments raise $36,400, while the 24 payments from 61 to 84 add only $16,900. More payments always means more cash, but each added block brings in less than the one before because the buyer waits longer for it. That falling return is the reason to think carefully about how many payments you should sell.
The buyer’s yield
Yield is the yearly return a buyer needs on the money they pay you. A partial note purchase is priced by finding the figure at which the payments deliver that return, so a higher yield means a lower price. The yield goes up with the risk a buyer sees in the note, and each buyer judges that for itself.
On your note, these are the things that move it:
- The payer’s record. A long run of on-time payments lowers the yield a buyer asks for, and late payments raise it.
- Equity in the property. The more the property is worth compared with what is owed, the safer the buyer’s position.
- Lien position. This is your place in line if the property is sold to pay debts. A first lien is paid first, and prices better than a second.
- The paperwork. A clean note, a recorded mortgage or deed of trust and a provable payment history all help.
The same things decide what the whole note is worth, so a weak file lowers the partial price and the ceiling above it together.
Limits at each end of the range
At the low end, every deal has fixed costs, so a buyer has a minimum it will pay out and a very small partial can fall under it. At the high end, a buyer may decline a partial that runs almost to the end of the note, since by then it is close to a full sale without the simplicity of one. If you need nearly everything the note would fetch, ask for a full-sale price as well. You can send us your note details and ask for a partial at more than one size next to a full-sale figure, with the yield behind each.
Cash on the offer and cash in your account
The two can differ. Ask whether title work, recording or legal costs are deducted from the quoted figure, and ask for the net amount in writing. A CPA can tell you how the money will be treated for tax, which depends on your circumstances.
Working out your own figure
Start from the amount you need and ask how many payments it takes to raise it. The smallest partial that meets the need gives up the least to discount.
Then check the answer against the ceiling. If the count comes back at most of the remaining term, the cash you need is close to what the whole note would fetch, and the two prices should be read together before you choose.
Related questions
Can a partial raise more than a full sale?
No. The full-sale price is the ceiling, because a partial is a piece of the same payments priced the same way. A partial can leave you with more in total over time, but never more cash at closing.
Is the cash from a partial paid all at once?
In a standard partial, yes. The buyer pays a single lump sum at closing. Ask whether any costs are deducted from it, and get the net figure in writing before you agree.
Why would two buyers quote different amounts for the same payments?
They use different yields. Each buyer judges the payer, the property and the paperwork in its own way and has its own cost of money. A small difference in yield changes the price noticeably.