Typically, buyers consider their risks in three general ways.

#1. Time-Value of Money.

The note buyer's primary concern comes from the principle regarding the time-value of money - the factor that determines the amount of time it will take to get their initial purchase cost back. Longer terms usually have lower payment amounts, and it takes longer for the buyer to get their funds.

#2. Equity.

Second on the "risk list" is the property value and the amount of equity in the deal. A small amount of equity creates an insignificant safety net for buyers should the note go to foreclosure. So, many will offer lower prices to create artificial equity and a lower Investment to Value (ITV).

#3. Payer quality.

Buyers will look at the payer and the potential for default. Does the payer evidence a good recent history for steady payments and a consistent job history, despite a poor credit rating? Even if the payer's financial performance is not stellar, it isn't necessarily a problem as long as there is plenty of equity to protect the note buyer's capital. But when there is no safety net, the buyer will need to discount a note heavily if the probability of payer default is perceived to be high.