Seller note simulator: yield & risk ranges
A seller-financed note doesn’t pay a single, guaranteed return — it depends on whether the buyer keeps paying, defaults, or pays it off early. This tool runs thousands of simulated paths under assumptions you set, and shows the range of outcomes: the middle case plus the range 8 in 10 paths land in, for what you might receive and the yield it works out to.
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Educational information, not legal, tax or financial advice.
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Simulated outcomes (5,000 paths)
0%
median annualized yield
Total received
$0
median, over 0 years
- 1 in 10 paths below
- $0
- 1 in 10 paths above
- $0
- At least 8 in 10 paths
- about $0
- Amount financed
- $0
Annualized yield
0%
median, vs 0% comparison rate
- Worst 1 in 100 paths
- 0%
- 1 in 10 paths below
- 0%
- 1 in 10 paths above
- 0%
- At least 8 in 10 paths
- about 0%
- Best 1 in 100 paths
- 0%
- If every payment is on time
- 0%
In plain words
Distribution of annualized yield
Histogram of simulated annualized yield across 5,000 paths
View as a table
| Yield range | Paths | Share |
|---|
Median outstanding balance by year
Line chart of the median outstanding note balance by year
View as a table
| Year | Median balance |
|---|
“Received” is note cash only — it doesn’t include the down payment, and it isn’t reinvested. To compare apples-to-apples with the comparison rate, the model separately reinvests each path’s note cash as it arrives; that reinvested value has a median of $0 against $0 from the comparison rate alone.
How this simulation works
- Thousands of monthly paths. For each of 5,000 simulated paths, the model steps through the note month by month using a fixed random seed, so re-running with the same inputs always gives the same answer.
- Each month, one of three things happens. Based on your default and prepayment assumptions, the buyer either defaults, pays the note off early in full, or makes the scheduled payment. A default stops future payments; after your foreclosure-months assumption, you receive the recovery rate applied to the balance at default.
- A balloon ends the simulation there. If you set one, the horizon is the balloon year and the buyer is assumed to pay the remaining balance at that point unless a default already happened.
- Percentiles summarize the spread. Across all 5,000 outcomes, the middle case (median) and the values 1 in 10 paths fall below and 1 in 10 rise above show the typical, worse and better cases for total cash received and the resulting annualized yield; the worst and best 1 in 100 show the tails. When those values round to the same number, at least 8 in 10 paths end about the same way, and the results say that instead.
The math comes from the same engine Clavesta uses in its app. The default, recovery, foreclosure-timeline and prepayment numbers are examples you control — Clavesta does not supply real-world default statistics for seller-financed notes.
What this leaves out
- Your buyer’s actual creditworthiness. This tool never shows or uses buyer credit data.
- Your own costs to service the note, or a licensed loan originator’s fees.
- Taxes on note interest, and state-specific foreclosure rules and timelines.
- Partial defaults, loan modifications or renegotiated terms mid-note.
- A note you sell before it matures, which usually happens at a discount.
Frequently asked questions
Why does this show a range instead of one number?
A note’s outcome depends on things that haven’t happened yet: whether the buyer ever misses a payment, refinances early, or stays current the whole term. Rather than pretend to know, this tool runs thousands of possible paths under the assumptions you set and shows the spread of what could happen: the middle case (the median), the range 8 in 10 paths land in (1 in 10 do worse, 1 in 10 do better) and the worst and best 1 in 100. When at least 8 in 10 paths end the same way, it says so instead of showing a range.
Where do the default, recovery and prepayment numbers come from?
They’re examples you can adjust, not market statistics or a forecast for your buyer. The three presets (cautious, middle, hopeful) are illustrative starting points loosely reflecting how seller-financed notes can behave, but Clavesta doesn’t track real-world default rates for these deals. Move the sliders to match what you believe is realistic for your situation.
What counts as a "loss" in the probability shown?
A loss means the total cash you eventually receive from the note is less than the amount you financed (the price minus the down payment) — even after adding back the recovery from a foreclosure sale. It ignores what you could have earned investing that money elsewhere; the comparison-rate figures address that separately.
How does the simulation handle a default?
In any given month, a random draw (seeded so results are reproducible) can trigger a default based on your annual default assumption. A default stops the scheduled payments; after the foreclosure timeline you set, the model credits you with the recovery rate applied to the balance outstanding at default. It’s a simplification — real foreclosures vary by state, timeline and property condition.
What does "annualized yield" measure?
It’s the effective annual return (an internal rate of return) on the cash you put out — the amount financed — versus every dollar the note eventually pays you, on whatever schedule it actually arrives. A note that pays on time at 7% yields a bit more than 7% because of monthly compounding; a default or slow recovery pulls the yield down, sometimes negative.
Should I use these numbers to negotiate terms with a buyer?
Use them to understand the shape of your own risk, not to judge the buyer. This tool never shows a buyer’s credit information and isn’t a substitute for the ability-to-repay checks and underwriting a licensed loan originator performs. Rates and terms are something you and the buyer agree on.
For sellers
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