While you have been enjoying the monthly payments from your borrower over the last year, there are some key maintenance items you need to annually complete to stay compliant and to grow your investment. Here is our annual list of year-end actions |
Introduction
The New Year is a great time to complete a lot of the “housekeeping” items in maintaining your Note investment. Some items are required and some are just best practices. However, if you are self-managing your Note, they are key items to complete to maintain the value in your investment.
Steps to Manage Your Note
- Mortgage Interest Paid-(IRS Form 1098) – This is an IRS form that shows the amount of interest paid by the borrower during the previous year. You should generate two copies of this form – Copy A (red) is sent to the IRS and Copy B is sent to the borrower. Forms should be sent by the end of January. (IRS FORM 1098)
- Mortgage Interest Earned-(IRS 1099-INT)– This is an IRS form that shows the amount of interest you earned during the previous year. You should generate three copies of this form – Copy A (red) is sent to the IRS, Copy 1 is sent to the State and Copy B is kept by you. Forms should be sent by the end of January (IRS FORM 1099 INT). NOTE: Some states do not require Copy 1 be sent.
- Property Taxes – While every jurisdiction has different due dates, property taxes are due annually. It is important to determine the due date and where you can check that the taxes have been paid. Make sure to check previous years because unpaid taxes can result in liens that may cause you to lose the house!
- Homeowner Insurance – Hazard insurance is strongly recommended to ensure the home is protected in case of damage to the property. Getting insurance is normally completed by the borrower but it is important to make sure the insurance does not lapse. Also important to check is that you are listed on the declaration page of the policy to ensure your loan is protected in case of catastrophe.
- Amortization/Payment – The amortization is a detail tracking of the payment, interest and unpaid balance of your loan, from beginning to end. You should have received an amortization at closing, and it is important to update monthly when payments are received. While we recommend you maintain this monthly, at the minimum you should complete update your amortization annually.
- Property Inspection – We recommend that you or an independent 3rd party does a drive by of the property on an annual basis. This external inspection will ensure that the home is being maintained and is still a functional working home. Getting a picture annually will help to see how well the home is being maintained.
- Borrower Contact Information – Borrowers move homes, change phones and emails all the time. A good practice is to reach out to the borrower and check in. This step will ensure an open line of communication if needed in the future and ensure you know how to get hold of the borrower in the event of an emergency.
Summary
As with an investment, a seller financed Note does require some management and attention. By completing the recommended steps above you will be able to maintain the value of your investment for years to come. While the list may be altered for your situation, it is important for you to develop an annual process to maintain your Note.
DISCLAIMER-Peak Notes is not an accounting or legal firm and the recommendations above are best practices and observations from our years working with notes. Always consult a licensed professional for both accounting and legal issues.
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Connect with Peak Note Why not set up a meeting with a Peak Notes specialist to discuss the annual steps you should be doing to manage your Note! Meetings are brief, cost nothing and can give you more insight into how you can maximize your investment potential! If your property is located in Florida, please click on this link and set up a meeting with John (Meeting with John). If your property is located outside of Florida, please click on this link and set up a meeting with Karen (Meeting with Karen). |