Posted by dk on September 22, 2006 at 07:33:23:
Yea that’s pretty sad. You and the other poster here make a good point. 9%, with no fees, commissions or some corp. fat cat stealing your money is hard to beat. Not to mention first lien security on real estate.
Structuring notes for MY Investors - Posted by dk
Posted by dk on September 12, 2006 at 09:02:57:
I buy houses, fix them up and rent to own to my tenants. Typical story and typically I buy foreclosures and use an equity line on another property. I have been doing it the same way now for coming up on 5 years. What I am working on now is establishing business credit, so I don’t have my name on the line, and utilizing private investors. Having done this now, and made good money I now have people that want in on this. However, I do not want a partner and all the hassles of that.
I am putting together an information packet to give to these investors and my goal is to get them a yield on their investment of 13%. I want to borrow the money, secured first lien on the property at 8%, interest only, 30 year amortization, balloon in five. I get the houses sold in that time frame so pay off usually is in 3 years.(Lets figure 5 though)
I have thought of giving a note at a dollar figure higher than the borrowed amount, but that works into the cash flow. Also, when I sell, offer a percentage of the net profits on top of the loan amount. Maybe a combination of both?
Finally, I want to sell them on using their IRA/Roth money as well. (Of course)
I would appreciate some help with the formulas for this. I have been out of the college finance class for Waaaaay too long, but surprisingly it’s coming back faster than I expected.
I have my new TI BA II Plus, my “Calculator Power” book is on order BUT I have to get my packet together ASAP.
Thank You in advance for your input
Quit theorizing and start talking to investors - Posted by John Merchant
Posted by John Merchant on October 06, 2006 at 10:45:57:
You’ll learn more in two or three investor meetings than any forum can tell you.
Your prospective investors will let you know quickly what it takes to get their money.
Re: Structuring notes for MY Investors - Posted by Anne_ND
Posted by Anne_ND on September 19, 2006 at 07:37:49:
dk-
Just wanted to comment on the interest rate you’re giving your investors. 13% and secured by real estate is very high. I think you can still get people interested and only pay 10%.
Just my thoughts…
Anne
Re: Structuring notes for MY Investors - Posted by Nelson
Posted by Nelson on September 12, 2006 at 19:15:43:
It sounds like you have already figured out most of it.
Just my 2 cents here.
If it is interest only, then there is no amortization.
If you are seller-financing at 8% but you want to give a yield of 13% to the investor you sell the note to, I figure the following:
Example,
200,000 Note @8% interest only with a balloon in 60 months pays 1333.33 a month.
For the investor to get 13% yield he would have to buy the note from you for 163,374.76.
Now if you have the balloon at 36 months the investor could pay you 175,267.47 to get 13% yield on his money.
I did not understand what you meant by “giving a note at a dollar figure higher than the borrowed amount”
Please explain.
Re: Quit theorizing and start talking to investors - Posted by dk
Posted by dk on October 06, 2006 at 10:52:09:
How’s this. 0%.
I just got a bid accepted on a house. The owner moved in with her daughter. I gave them asking price, divided by 144 months, balance paid in 5 years. I’ll double the payments and have practically no balance due. Bought for 45k, 12k in rehab, worth 84k. I may keep this one.
Re: Structuring notes for MY Investors - Posted by dk
Posted by dk on September 19, 2006 at 08:07:39:
Yea, I tossed 9% out to somebody the other day and they thought that was great. Thanks though.
Re: Structuring notes for MY Investors - Posted by dk
Posted by dk on September 14, 2006 at 18:37:50:
Nelson, thanks for the reply.
I get you on the 8% no amortize, thanks for the correction.
The rest, I guess I didn’t explain well.
I am buying a foreclosure now for $55k and figuring $10k in repair. I am going to have an investor, give me the $65k to reimburse my savings and use the money to do it again. Generally I use the bank, but they have tightened up and cut back to 80% of my purchase price. The house is worth $85k after repair, so the investor is at a good LTV, but 80% of $55k is not a good deal for me to work with.
What I was refering to with “giving a note at a dollar figure higher than the borrowed amount.” Is maybe make the note $70k when only borrowing in actuality the $65k. Then they would be earning interest on money they never lent and when I close the sale on the house the money back to them would be $70k.
OR, I could do a note for $65k, and offer them a percentage of the net profits when I sell?
OR a combination of the two.
If I do any of these three, how do I figure the yeild on their investment?
Thanks
'Attaboy…keep on keeping on - Posted by John Merchant
Posted by John Merchant on October 10, 2006 at 12:23:09:
You’ve got it, and as you just demonstrated it’s too easy NOT to do.
I expect one of these days you’ll be filling auditoriums with your story and it’ll be funny to you then that you were once reluctant.
Banks paying interest - Posted by Nelson
Posted by Nelson on September 22, 2006 at 03:14:47:
I saw a billboard this week that boasted a bank’s savings account paying a whopping 2.2% annual interest.
I thought to myself, Is it worth it to spend money on a billboard to announce that kind of rate?
Re: Structuring notes for MY Investors - Posted by Nelson
Posted by Nelson on September 15, 2006 at 01:20:31:
First, make sure you check with your lawyer on the first scenario.
But calculating yield should be easy.
Essentially they take into account the money they give you and when they get paid over how long and voila!
I have momentarily lost my Real Estate Calculator. I’ve had for 17 years and this week I have lost it.
But this site has a nice little calculator that should help.
Let say we use your numbers
Loan is 65K
Future Value 70K (since you want to pay additional incentive)
8% interest only
433.33 pmt
3 year balloon
Yield 10.20%
With a 5 yr balloon 9.22%
2 yr balloon 11.44%
Re: 'Attaboy…keep on keeping on - Posted by dk
Posted by dk on October 10, 2006 at 12:30:09:
Funny thing was I did it with a couple of Realtors. Mine is loving it. I got someone new who is young and open to ideas. She was floored that they didn’t even counter. Truthfully I was a bit too.