For those who create notes, and sell them to other investors, what is the “average discount” you can expect to get off the SFH’s ARV (or face value on the note)? Obviously the sophisticated investor makes his decision based on his/her annual percentage yield…and this answer can’t be just 75% of the note value. Or 90% of the note value. But is there a good “average”?
—> E.G. Do most note sophisticated note buyers want an extreme discount…of say like 50% off of the notes face value??? Or is it less?
I’ve heard of a guy selling notes at 93% of their face value…but that’s hard to imagine.
So say this is the situation. You buy a house for $50k, and spend $10k fixing it up. The comparables in the neighborhood are going for $110k to $120k, and you create a note for a buyer with a 600 credit score at $110k w/ $5k down (total note face value of $105k), at a fixed rate of 8% for 30 years. That makes the person’s monthly payment before taxes & insurance $770.50. Your total investment is now $55k ($50k+$10k-$5k).
That gives you an annual percentage yield of 16.8% (not too exciting, but not horrible, considering its secured) if you hold the note yourself over the 30-year term. But since your goal currently with this house is to maximize your cash, you decide to sell the note.
—> What’s a reasonable discount for a note like this?
Would you guys make notes like this at a higher interest rate (probably a good idea…but 10% seems too high for a note like this to me)?
Obviously if you sell it for $75k, you’re only going to net $20k after doing all this, before any costs. Ugh.
Also has anyone done something creative - like hold the note for the first 5 years of its 30 year amortization and THEN sell the note. Obviously this will greatly jack up your own APY!
:cool YES a note with some pay time on it will sell for more HOWEVER the note my pay one thing by one person and more or less by another
KEEP in mind the note business is very up in the air right now and most are selling for high discounts AFTER the first of the year theymay come back down and not as high a discount ??
BUT for now i would say hold your note for a year or two then see what it will bring
I was holding a mortgage for a friend upstate NY and made an attempt to sell the note…People were offering me 70-80% of the note’s value (which I declined)…I ended up getting %95 by convincing the actual payor to purchase it…The note business is in shambles right now because many of these buyers borrow the money to buy the notes…So we all know there is presently a credit crunch…Also selling a note in the early stages is beneficial…Note buyers want the loan close to it’s origination and the payor’s credit score plays a huge part…
It seems LTV, credit, and seasoning are playing the biggest part in determining the discount.
I have one with around a 525 credit score at 60 LTV and I was offered approx 75% on it. I turned that down. There are alot of web sites for these note buying companies where you can fill out a form and they will get you some quotes.
Another question - Does having a balloon payment on the note make it anymore attractive?
I was thinking about that, putting a 2, 3, 5 year balloon on it. Which I would think would make it better, because that means in a short amount of time they should get the face value of the note via a refi payoff.
steve-o note brokers assume that anyone selling a note is desperate and dying on the street for a buck…I turned down every offer from those websites…They are a waste of time and the person I was holding a mortgage for had a 700 credit score they were still offering me 70-80%…They have every excuse under the sun why they offer insulting bids…As for the balloon being beneficial I have no clue but my loan had a 2 year call which made it extremely beneficial to buy and I still had trouble…If they can’t steal the note they don’t want it…If you private message me I can give you the name of one guy who is a major player and was a real honest and upfront buyer…His price was higher than others but I ended up getting the best price by selling it back to the payor…
One more piece of advice is %90 of responders to note ads are trying to broker the deal to someone else to capture the spread…So be careful not to get tied up with a dreamer who in reality has not a single dime…I got lucky but dealing with note buyers is no picnic…