There is no single yield that note buyers look for. Each buyer sets a target for each note, based on what their money costs them and how risky that note looks. The safer and simpler your note, the lower the yield a buyer will accept and the more they will pay.
Yield is the yearly return a buyer earns on the price they pay for your note. We do not publish a typical figure, because one number cannot be right for a first lien on a house and a second lien on raw land at once. The yield on your own note is printed on each offer when you ask us for a price. What this page can show is how a buyer arrives at theirs.
A buyer’s yield is built in layers
Think of the target yield as a stack, with each layer added to the one below it.
- The floor. What the buyer’s money costs, or what it could earn somewhere safe and easy. A buyer who borrows must earn more than their loan costs, and a buyer with investors must earn more than those investors are paid.
- A layer for holding a private note at all. A note cannot be sold in a day, it needs servicing, and it is one loan to one payer. Buyers want to be paid for that even on a very good note.
- A layer for this note’s risks. The payer, the property, the lien position and the documents.
- A layer for effort and size. A small note takes about as much work to review and close as a large one, so the buyer needs more return on each dollar to make it worth doing.
The lower two layers are the same for every note a given buyer looks at. The upper two are about your note. They draw on the same factors that decide what your note is worth, and several of those you can influence.
What pushes the target up or down
| Feature of the note | Buyer accepts a lower yield | Buyer asks for a higher yield |
|---|---|---|
| Payment record | Years of on-time payments, proven | New note, late payments or no proof |
| Payer’s credit | Strong | Weak, or not checked |
| Payer’s stake | Large down payment | Little or nothing down |
| Lien position | First lien | Second lien, or unsecured |
| Property | Owner-occupied house | Raw land, mobile home, special-use building |
| Structure | Level payments to the end | Large balloon, interest-only period |
| Documents | Complete, recorded, with title insurance | Gaps or informal changes |
| Payer status | Paying as agreed | Behind, or stopped |
A lien is a legal claim on the property, and a first lien is the claim that gets paid ahead of the others.
Why the target shifts from year to year
The floor moves. When interest rates in the wider economy rise, a buyer’s money costs more and safer investments pay more, so the return they need from a note rises too, and when rates fall the reverse happens. The same note can therefore be worth a different amount in different years with no change to the note itself.
From target yield to price
A buyer takes their target and finds the price at which your payments deliver it. Because the payments are fixed, a buyer who needs more return has only one way to get it, which is to pay less. Put the same note in front of a buyer with a lower target and the offer is higher.
Finding the yield on an offer you hold
Ask the buyer. They know the yield behind their price, because that is how they produced it. If an offer comes with only a dollar figure, ask what yield it gives the buyer and what balance and payment count they used.
Then get the same answer from someone else. Buyers stack their layers differently, so two of them can land on different yields for the same note, and the spread between them is real money to you. Line the answers up by yield as well as by price: on the same set of payments, the lowest yield is the highest offer. Where two offers cover different numbers of payments, the dollar figures cannot be ranked against each other and the yields can.
Related questions
Why will you not tell me a typical yield for note buyers?
Because it would mislead more often than it helped. Yields differ between buyers, between kinds of notes and from one year to the next. The useful number is the yield on a real offer for your own note.
Do buyers want a higher yield on a small note?
They can. Reviewing and closing a small note takes about as much work as a large one, so a buyer needs more return on each dollar to cover that effort.
Can I negotiate the yield a buyer uses?
You can ask, and it helps to show why the note is safer than they assumed, for example with proof of payments. Bringing a second buyer's offer does more than arguing does.