buying mortgages at a discount - Posted by john

Posted by Jon Richards on June 22, 2002 at 08:07:41:

You are correct we buy notes at a discount, but seldom use the word “discount.”

Rather we buy a note to “yield” us a certain percent return. That “return on our investment” or “interest” is determined by the quality of the note.

Your $100,000 farmland note written at 10% interest amortized over 30 years would have monthly payments of $877.57. If I bought it to “yield” me 13%, or to give a 13% “return” I would buy it for $79,332.

If the same note were all due and payable in 60 months, with a balloon of $95,574, I would buy it for $89,162. This is also for a yield or return to me of 13%.

The difference is in the time until I would get my money. Long term notes have severe discounts.

Details of these calculations are in our book Calculator Power, for sale on this site for $39.95.

Hope that helps.

Jon Richards
NoteWorthy Newsletter
415 824 1864

buying mortgages at a discount - Posted by john

Posted by john on June 20, 2002 at 12:57:39:

If one were to sell a 10-year note on farm land(6% with balloon at end) for cash, what would one expect the discount to be? 5%? 10%? 25%? 50%? or? In other words, theoretically if I wanted to buy a $100,000 mortgage secured by farmland, what should I expect to pay for it in cash? Is this sort of thing done all the time?