First of all, thank you for your reply.
Some clarification on the information that I provided.
The real estate investor, the source, is the payor for the notes, which is why I included his credit score.
He does his deals by creating 2 seller carryback notes, a 1st, which is sold to pay the seller of the property and from the proceeds of which the seller will credit to the investor an amount for closing costs and any cosmetic repairs, and a 2nd. The following is a typical example of one of the notes he has sent me. The interest rate, LTV, and terms will generally be the same for any of his deals, only the amount would change.
Sale Price/Appraisal: $100,000
1st: $80,000
2nd: $15,000
Down payment: $5000
Interest rate: 11%
LTV: 80%
Terms: 30 year fixed
Monthly Payment: $761.86
Type: Duplex, Tenant occupied
I understand that the discount on the note would vary from note to note. The “94 cents on the dollar” that I referred to is what the investor told me that he had received on his last note deal and what he would like to get on the notes sold for his deals to be profitable. What I would like to know, if possible, is would a discount of 94% on the notes sold be feasible on a regular basis? I hope this clears up any confusion that I might have caused. I fyou need any further information, please feel free to contact me at my e-mail address.
I am just starting in the note business and I realize that I should, as John has suggested, broker a few notes first, but I came across a potential source for notes and would like to know if it is viable and should be pursued.
The source in question is a real estate investor who purchases residential and commercial properties, such as SFRs, strip malls, multi unit apartments, etc. He buys the properties by creating 1st and 2nd seller carryback notes. The 1st notes will be sold simultaneously. They are typically 75-80% LTV, 11%, amortized for 360, with some, but not all having a balloon. The down payment will range from small ($1000) to 5%. His credit rating on Experian is in the low 700s. He has currently about $2,000,000 in 1sts available and says that he would generate about $500,000 to $1,000,000 every month. The notes I have information about now range from $100,000 for a duplex to $711,000 for a 30 unit apartment. He already has sold a note for about 94 cents on the dollar, which is what he has told me what he needs to make some money on the deal. He doesn’t to have to go through the hassle of trying to get these notes sold every time. He doesn’t really want to go through a broker, who then sells it to a bank somewhere else, with paperwork possibly being lost in the shuffle and potentially screwing up the deal. He wants somebody who he can call up, give the info on the deal, and be assured that everything on that end will be taken care of.
I know that I would probably not be able to take very much cash up front out of these notes with a 94% purchase. I realize the main focus would be to develop a positive cash flow from these notes. Being rather new, what I would like to know is if these notes would be a viable source to profit from? If they are viable, since I have not yet gotten together any investors, would they be viable enough to justify the obvious time and effort to get together a network capable of funding these notes on a regular basis?
If so, what would be the best way of getting investors knowing that I need to get them rather quickly since I would not want the source to get away?
I thank you in advance for any help or comments that you may have for me.
I thought I would wait to find out what John answers but then decided to throw in my two cents. While it is great that the note holder has good credit, it is the note payor that buyers will look at. Unless he wants to sign on that note and sell with recourse. You should be contacting note buyers and asking for a brokers package and their current note buying criteria. Typically, on residential they want to fund no more than 80% of appraised value on a SFH un-aged note. The yield to them for good credit can be as low as 9 ½(near 8 for aged) for good credit and 11 ½ for lower credit ratings. On commercial they lower to 70% ITV and raise the return wanted. The figure of 94 cents on the dollar is superfluous. If the note does not have a prepayment penalty it may be penalized. A portfolio can bring higher returns. A 100K note at 11% would discount to 96% at 11 ½ %. If the property were only worth 100K then 80K is the max anyone wants to pay. Whether something like FNAC?s credit line is worthwhile for you I can?t judge. Obviously private investors will to take a lower yield is better.
To tell if you can make money a specific note would have to be discussed for details of what he has to have.