Figuring discount value of note for beginner? - Posted by dave (bal'mer)

Posted by David Butler on December 04, 2001 at 12:56:11:

Hello Dave,

There are some matrices floating around for estimating accurate discount yield grading and pricing for residential real estate notes (for properties less than four units, and including mobile homes), and you can find a very useful model in the Note Grading/Pricing Guidelines at:

It’s not quite as simple for commercial real estate notes (including multi-family residential properties over four units), land notes, special use property notes, or business notes - due to the many other variables that come into play. Some basic information can be tracked down, but an attempt to determine accurate “ballpark” estimates ahead of time for these particular types of notes generally comes with experience in the field.

One other thing to be aware of in the private cash flow secondary markets… there is a great deal of flexibility, and a broad spectrum of investors - bringing a broad variety of risk tolerances, investment philosophies, and individual proclivities to the note buying table. So pricing can vary much more widely than in traditional lending markets, as can decisions as to what constitutes a viable note purchase.

No price quote really means much, until the potential note buyer has in his hands, a complete picture of the note itself. Far too many note sellers shoot themselves in the foot, shopping for quotes - rather than focusing on selling the note - by putting out less than full or accurate information about what they have to sell. You are definitely on the right track by looking to factor in all the relevant issues ahead of time.

Hope this helps, and best wishes for your success!

David P. Butler

Figuring discount value of note for beginner? - Posted by dave (bal’mer)

Posted by dave (bal’mer) on December 03, 2001 at 21:31:22:


I am not sure if this is a ridiculous question or an obvious question. So forgive me if it is either.

Are there a series of charts or software for figuring the value of notes based on FICO, employment, LTV, down payment etc.

I am (primarily) interested in selling rehabs retail, and I just wanted to look at options of seller take-back if a buyer could not obtain financing for the full amount. And what the discount value of this note would be based on buyers stats.
I know that note buyers should try to purchase notes at a great discount, but is there a way to estimate fair market value prior to offering a note for sale.