Carefully! - Posted by David Butler
Posted by David Butler on May 26, 2004 at 18:20:34:
Pretty good job so far
Jumping right into your questions here…
“I then read on, siting that is is an investment
property note (so that’s “NOO”) and a go to the
“Max Investment to Property Value” sheet. AB vs.
“3” gives 70%, then I become lost.”
Not sure why you become “lost”, as it is all explained there, but let’s rerun it here. Also, I come up with 67% for AB in cateogry 3, so you’ll want to double check that.
Q.1) 70% of what?
A.1) As it states - 70% (or 67%?) of property value
Q.2) What is ITV?
A.2) As it states - Investment-To-Value (property value). So one of your two criteria here, GENERALLY, would be that IF property is TRULY worth $41,000, the maximum amount you would consider investing in the notes would be a total of roughly $41,000 x 70% (I’m using 67% here), or $27,470.
Then I compare that price with the price I would pay based on yield I would require. And the lower of those two numbers would be the purchase price, as that lower number is the only one that meets both my ITV and Yield requirements.
Q.3) How do I figure out the last chart (“Max Investment to Wholesale Property Value”)?
A.3) Referring to that chart (titled “Residential Mobile Homes in Parks”) which you haven’t indicated applies here?; you would simply follow the instructions for using that chart, including footnote #7.
Okay… should be all set now, I hope! Now last question below…
Q.4) At this point, I believe I can get both notes (current face value is $14K and $17K) for $19K. Is that good???
A.4) Not enough full information to know, but even if there were… in all honesty, only YOU can answer that! Is it? By the way, you’ll observe that footnote 4 for that chart mentions GENERAL “private investor” parameters. And they can swing wildly, as discussed in a thread sometime back regarding “investment value”.
You do have some advantages though. You apparently are working right in your own neighborhood, which gives you a very low-cost and “hands-on” opportunity to really research the property, demographics, values, Payor, and tenants.
So then you answer these questions for yourself… If you get these properties back - can you “ride-out” foreclosure timeframes and costs? Holding costs? If you winding up with properties, can you easily dispose of them quickly? And at what price and terms?
And… the big three MONEY questions…
- why is seller selling now?
- how much cash does he need?
- what are his expecations? You’ve answered this one. Sounds like he expects $19,000 to be a good price.
Which brings up the question… why are his expectations only $19,000 for $31,000 of notes that he generated on property sales of $41,000 and he’s only recovered roughly $10,000 total from that $41,000, and only six months lapsed on first note, none on 2nd.
That’s almost the same as selling properties for the equivalent of $29,000 ($8k down, $2k principal reduction, $19k for note sale) - given the short time frames. That’s quite a “haircut”, right?
Could be a very good reason. Or maybe not. But good to know either way, right? And BEFORE you buy the notes, rather than after!
Either way, would be valuable to you here to also become familiar with the concept of “cash equivalent value” vs. “transaction value”, both of which can be found in threads discussing them, by way of the “Search” engine as well.
Okay… looks like you are on the right track, but a couple of laps yet to go! Hope this helps you get in the “Winner’s Circle” on this one!
David P. Butler