Re: A Real Paper deal!..Any suggestions? - Posted by Reif
Posted by Reif on April 08, 1999 at 23:42:50:
Just to preface, I’m a new guy, so if I’m out to lunch, someone please let me (and Doug) know.
Actually, after rereading this on the other board, I think I have it figured out.
Essentially, what is happening is Doug is refinancing the property for them at 9% (I agree with the others, Doug, since you don’t OWN the deed, you can’t write a contract FOR deed - you are going to write a mortgage or deed of trust.)
So, having said that, where are you getting the 31 large? If you can get it at 7% great, but I don’t know how that’s gonna happen.
If you are happy with 14% yield, I believe your original discount numbers work. But I also think your IRR only goes to about 14.48% if you can get them to go $25 higher a month.
Remember, if they give you an extra $25/month, your note now would amortize in 82 months, not 96 - perhaps that is where your miscalculation is.
I’m just a new guy, but intend on getting in the business myself. Maybe John or Bud can confirm the numbers.
The payors on this note are in trouble - and if the mortgage holder doesn’t want to foreclose - so is she.
Something doesn’t square here: The property owners need 31K in one month that they presumably do not have. The note holder, with one month to go, doesn’t want to foreclose, but doesn’t want to discount the note.
Have you asked each party what their intentions are when the balloon is due?
There HAS to be an answer there - and therein will lie your solution.
If you basically wind up refinancing the payors, as was your original idea, I would extend the term on the note (and therefore create a higher face value) to increase your yield. Hey, you’re saving their credit - you ought to get a fair return for that. 133 months (11 years, one month) gives you a 18% return ($46,289 face value).
Now you have a better chance of getting cashed out, and, your graduated payments (if you go that way) give you a much better IRR.