Auto Dealer Floor Plan Note

This is my first time in the forum. Enjoy reading everybody’s posts. Lots of valuable information from a lot of seasoned pros. Does anybody out there have much experience with auto dealer floorplan notes? I have a potential deal with the following specifics:

$700K Note
$300K has been repaid
No interest - Payor agrees to pay $17K each month
24 payments remaining
Note is secured by titles to automobiles (used 2-3 yr. old cars)
Payor is one payment behind. All previous payments were on time.
Seller of note is willing to take a discount so he can cash out

I’ve never done one of these deals. What pitfalls or obstacles do you see? Is this a good deal? How much of a discount should I seek for a note like this?

The only thing I’m not too excited about is having to keep up with the payor’s inventory. As vehicles are sold and paid, I would release the title. Also, this is a dealer that is out of state so I won’t be able to monitor the payor’s business too much.

Appreciate any input or advice. Thanks.

Burn

This all depends upon your taste for risk. Used cars have wheels and can disappear quickly. Check out the dealer, his reputation, his credit, his references, everything. Price it based upon the risk you must be rewarded for taking and the estimated (wholesale) value of the vehicle titles you will be holding. $17k x 24months is $408k, discount these payments at an appropriate return rate to get your potential offer. Discounted at 20% your talking about $330k. Is that sufficient for you or would you want more return for your risk? The dealer being in another state increases your risk and also brings to question perfection of your lien/ownership of the car titles as security for your loan. Lastly, what if the dealer defaults and you have to repossess all those cars? Are you prepared for that and for disposing of them?

If the guy gets in trouble he can have those cars chopped and gone in a few days regardless of whether or not you have the title. You having the title keeps him from selling them legally but not stopping him from selling to a chop shop.