Posted by James Harris on August 29, 2009 at 07:14:22:
As far as I can see, this note is already priced too high. The seller wants more than the face value of the note. No note buyer will pay a premium for a note. There is no way to make any money out of this note if you pay his price. Most note buyers MAY, depending on the terms of the deal, may offer to buy a stream of payments up to or including the balloon or a percentage of it. Called a partial note purchase.
If you want to make a 10% return on your money, pay the face value or the remaining balance. If you want a higher return, reduce your purchase price. Using this method, it seems as many note buyers are getting an average of about a 20% return on their investments. i.e. the interest rate on the note plus the discount of the purchase.
Posted by bill hughes on August 24, 2009 at 15:20:11:
have an opportunity to buy an existing commercial mortgage
with an outstanding principal amount of 290,000 an interest
rate of10% and a remaining term of 5 years - seller wants
310,000 for it - how do i determine its value as an investment?
Posted by Tommy Ray on September 04, 2009 at 11:48:21:
I am offering notes at 7% but you get 2% in pocket up front for finding the mortgage money for me. If you are “finding” your own money then you are already at 9%. LTV is 60-70%. Lender gets 1st mortgage.
Posted by Scot L on September 03, 2009 at 24:10:04:
Bill,
Most note buyers today are not looking for inplace yield, but rather a loan to own strategy. In other words, you buy the note and proceed to forclosure (assuming it is non-performing) If this is the case, you start by evaluating the underlying asset, add legal costs for the foreclosure, any repairs (TIs and leasing fees), and profit or cash on cash etc if you plan to hold.
If it is performing then it is simply a desired yield calculation. Load the note into your TVM register in your calculator, chage the INT to your desired yield, and then solve for the new PV. That will be the number that you can afford to pay to achieve your desired yield.