Getting Started? - Posted by Reif

Posted by John Behle on July 26, 1999 at 22:24:16:

18’s pretty good in today’s market for a good note. Whether it is good enough for you might depend on your cost of money or whether funds on hand or equity is bringing you that high a return. As we discussed, equity doesn’t bring any return except the “opportunity cost” that you could borrow the funds at.

The other factor can be the other available returns. If you have other deals with better returns, then put the funds there. If higher returns aren’t coming your way, this might be a nice investment - even though there may not be much of an upside. I wouldn’t rule out a refinance. Offer a little discount or pay the loan costs and they should be way ahead of the game in today’s market.

Getting Started? - Posted by Reif

Posted by Reif on July 26, 1999 at 18:59:14:

I’ve got the opportunity to buy a 2nd TD.

28K face, 60 months, interest only, 5 year balloon.

She wants 20k for it (about 16%)

I offered her 18.4K (about 18.5%, or about 18% after costs).

She said she’d think about it (read, shop my offer around).

I know we talked about getting them out of the house - I guess you should do that before you talk about price, eh?

Any how, I’m wondering what folks think is the market rate for 2nd’s anyway (Total LTV 80%, ITV about 75%).


P.S. Thanks John, for a great week, and to all my new friends in the note biz. Had a great time, except for that period of “down” time . . .

Re: Getting Started? - Posted by John Briggs

Posted by John Briggs on July 27, 1999 at 19:58:41:

Sounds as though you have all kinds of great info here from very smart people. I was thinking you may be able to abort the demon seed before it pops by talking to the holder and applying some of the things Johns coarse suggests. Look at picking up the underlying and possibly prepaying or sinking fund enough to cover time to forclose or negociate if pmts late. Maybe suggesting that you need an option on the note to secure the money she needs, while she is thinking, as you are probably checking lots notes and need to set $'s asside for her if she really wants to sell.

2nd liens - Tread Cautiously - Posted by Mike Morrongiello

Posted by Mike Morrongiello on July 26, 1999 at 22:24:20:

I would be cautious about buying into a 2nd lien position note. Make sure you find out clearly what is owed in front of you? What type of note terms the 1st lien has ? and that it is current?

With the prospect that this balloon payment may not get paid when due I would factor into the transaction the potential costs for feeding the 1st lien and litigation while foreclosing on the 2nd lien if need be.

2nd liens are inherrently risky and remember; If that balloon payment does not get paid when due your “yield” goes down the drain. Now that can be good or bad depending on other exit stratergies you have with the property and its value.

Just thought you might like another perspective.

Michael Morrongiello
Operations Manager

A little bit of a Partial - Posted by John Behle

Posted by John Behle on July 26, 1999 at 19:33:12:

You aren’t too far apart on price. I’d follow up with an offer of 15k cash and a 5k note. Give her the last 5-13k of the note in payments or PV - depending on the yield. I’d work the numbers, but haven’t unpacked the calculator from the car - and I know you can work the numbers anyway. You can still get your 18% plus.

Slightly used crutches for sale - Posted by John Behle

Posted by John Behle on July 26, 1999 at 19:28:47:

Almost new. Very little mileage. Sleek and speedy with a great silver paint job. Low down, Owner will carry. Call Reif at 1-800-LOOK-OUT!

Re: A little bit of a Partial - Posted by Reif

Posted by Reif on July 26, 1999 at 21:03:30:

Is 18% “good enough?”

I think that the potential for improvement (at least refi) is pretty small, just because the interest rate is so low and the term is so short.

Prerequiste… - Posted by David Alexander

Posted by David Alexander on July 27, 1999 at 10:30:37:

Must have taken “Dancing 101 with Manhole Covers”.

David Alexander

A foreclosure in embryo. - Posted by DanM(OR)

Posted by DanM(OR) on July 26, 1999 at 23:07:24:


I very wise man once described a balloon, as a forecloseure in embryo. If you buy it, maybe you need to remind the people of the time-bomb that is ticking away. Then offer a discount. I would be nervous. With rates bound to climb up. Wouldn’t you be? :slight_smile:

Best of luck buddy,

Dan Matejsek