Posted by DougB on April 09, 1999 at 11:05:23:
Both you and Irwin are right, but that’s what makes this one so interesting. The noteholder just wants her $32,000 cash, she doesn’t have any interest in taking back the property. The homeowner for some reason doesn’t want to refinance through a bank. I’m just giving you the facts, I’m not judging the peoples motives or intelligence.
DougB
A Real Paper DEAL! Any suggestions? - Posted by DougB
Posted by DougB on April 08, 1999 at 12:15:57:
Got a call 2 days ago from homeowner that has a balloon for $31,643.15 due 5-1-99! He’s paying $400/month @ 9.75%. I called the note holder, who is an investor, and she will not discount the note or take partial cash. Really no reason to, but it doesn’t hurt to ask, because the property FMV is $70,000 and I’m sure she would love to take it back. The owner wants to keep the house because he is improving it and adding a garage. He has talked to the local banker and the banker suggested they take out a home improvement loan. The owner doesn’t want two payments. I suggested refinancing the home, but he for some reason wasn’t interested in that idea. Both he and his wife work, he is a self-employed carpenter she has a clerical desk job. He said they could afford $550-600 a month payment. My idea is to pay cash to the noteholder for the contract for deed and write up a new C4D for 96 months at 9% interest with payments starting at $550 the first year and increasing $25 per month each year. The last year’s payment will be $750 per month. I put the numbers in my new HP19BII using the cashflow menu and come up with a 17.54% yield, which gives me a 10-point spread. Of course I will eventually try to get the homeowner to payoff early, which will increase my yield.
Any other CREATIVE ideas or suggestions?
Thank you in advance for your suggestions.
DougB
Re: A Real Paper DEAL! Any suggestions? - Posted by Redline
Posted by Redline on April 08, 1999 at 13:05:13:
uhh, maybe I missed something but why would the note holder sell the note to you (when you already know they’re not flexible) when it’s due in less than 1 month and he’s gonna get something like a $40k gain by taking the house back?
Also, are these homeowners dreaming? Don’t they realize they need to refinance this house? Have they tried and been turned down?
Confused,
RL
Hope this clears it up - Posted by DougB
Posted by DougB on April 08, 1999 at 21:28:21:
I would write a new C4D for $37,542.14 and cash out the note holder for $31,643.15. The input is as follows N=96 I=9 PMT=550 FV=0 press PV= -31643.15 then input PV= -31,643.15 press I=14.02. To increase my yield I was proposing to increase the payment $25 dollars each year. In the cashflow function on the HP19BII input -31,643.15 as my initial investment then input the increasing cash flows for 8 years. That?s how I came up with the 17% yield. I?m new to the financial calculator, but I did review John Behl?s tapes to make sure I was doing it correct. Did I do okay? It seems very odd to me that the homeowner wouldn?t refinance, but he doesn?t want to. I was the one who suggested he refinance! The note holder just wants her cash and doesn?t care who she gets it from. She doesn?t seem eager to foreclose and get the house back. My statement ?I?m sure she would love to take it back? is not what she told me on the phone, sorry to mislead you. I know the whole scenario seems odd but I?m just telling you the facts and nothing but the facts! Any suggestions or ideas?
DougB
I think Redline’s point is - Posted by Irwin
Posted by Irwin on April 09, 1999 at 07:52:50:
that these homeowners have to come up with the $31k note payoff in about 20 days. What choice do they have other than refinancing, either with you or a bank?
True, and … - Posted by Redline
Posted by Redline on April 09, 1999 at 09:51:44:
If I’m the current note holder, I can’t wait to take the house back … I’m certainly not going to sell the note!
RL