advice on possible note purchase - Posted by Natalie-VA

Posted by Natalie-VA on June 29, 2007 at 19:27:14:

Thanks John. I guess it’s time for me to learn how to use my HP 12C. I thought more about this situation, and concluded that I need to remember to follow some of the same rules I follow in my RE investing:

Don’t become a motivated buyer.

I would prefer a yield of 25% or more to make it worth my time, so off to the HP 12C I go. If the note seller insists on getting full price, he can keep it. I don’t NEED to buy it.


advice on possible note purchase - Posted by Natalie-VA

Posted by Natalie-VA on June 28, 2007 at 06:54:35:

Hello All,

I’m very experienced in real estate investing and have zero experience in notes. The opportunity for passive income intrigues me.

Here’s the deal. I have someone who wants to sell me a note. I think it’s actually a mechanic’s lien that’s already been enforced. I would have an attorney review it and do an escrow for me if I decide to buy. The attorney I’m thinking of specializes in real estate, collections and foreclosure.

The note is for $27,000. The rate is 17% for eight years. The monthly payment is around $516. The note holder is not interested in selling at a discount. The collateral is local to me and worth around 175k. It should pull around 105k-115k at a foreclosure auction. The payments are current and started around 5 months ago. I’m being told that it is in first position in front of a reverse mortgage and that I can foreclose if she doesn’t pay. My attorney will verify that for me.


This sounds like a good deal to me, even without the discount. Does anyone agree?

I feel that I’m protected by the collateral, but if she defaults and I foreclose, I am out the $900 finder’s fee I’m paying, plus around $500-1000 in attorney’s fees.

Is there another way to minimize my risk and still give the note holder what they want – maybe buying some of his payment stream? How would this work?

Thanks for any thoughts on this.


Can anyone help with the calculations? - Posted by Natalie-VA

Posted by Natalie-VA on July 01, 2007 at 14:41:35:

In the scenario where the original note was for $27,000 for 8 years at 17.0 percent with a monthly payment of $516.28.

Let’s say I purchase the note after six months of payments and that I have $1000 in atty’s fees and $900 in finders fees to pay. I want a yield of 25%.

I’m getting that the most I can pay for this note is $20,800 including the fees. The seller would get $18,900 of that.

Is this correct? I feel like I’m missing something. Shouldn’t the yield vary based on whether it pays off immediately or over the life of the loan?


Re: advice on possible note purchase - Posted by John Behle

Posted by John Behle on June 28, 2007 at 11:05:27:

Taking into account the costs and assuming that there are not any others, your yield would be 13.9% over the term of the note. If it pays off earlier, your yield will decrease since the finder’s fee and attorneys fees would not be amortized over the full 7 years and 7 months left.

Sounds like the collateral is good and it would be a good deal if that is an acceptable yield for you.