Buying a portfolio - help - Posted by Tim Kimball

Posted by Tim Kimball on March 08, 1999 at 15:05:12:

Buying a portfolio - help - Posted by Tim Kimball

Posted by Tim Kimball on March 05, 1999 at 07:25:01:

I am currently looking into buying a portfolio of 12 notes secured by SFRs. There are 3 1sts, 4 2nds, 4 wraps, 1 3rd.
the LTVs are good. the entire portfolio has an LTV of about 80%. How do I calculate W.A.C.? I’m not sure how I should analyse a portfolio. esp. one that is as mixed as this one.
about the wraps, should I even consider these. If one did buy a wrap, would you be assuming the underlying loans with it? It seems that you would have to. Any advise as to due diligence or wheater or not I should buy or not would be apreciated.

Re: Buying a portfolio - help - Posted by John Behle

Posted by John Behle on March 12, 1999 at 22:02:19:

Sorry for the late post - I was in Dallas at the convention and then have been catch up since.

I agree with the advice you’ve gotten. As was pointed out, valuing the wraps is through the net cash flow. The difference between the two loans - cash coming in minus payments on underlying loans. You then do an uneven cash flow analysis. Most of the time it is best to leave underlying loans in place, but occasionally it is better to pay them off - depending on the rate and terms.

You do not have to assume the underlying loans.

Re: Buying a portfolio - Some Help - Posted by MN~Chicago

Posted by MN~Chicago on March 06, 1999 at 23:57:45:


Some of the things you need to know would be
the fair market value of each of the underlying
properties. If you had to resell one, is there
enough room between the FMV and your LTV to
make a sale and recover your investment.

Or, would you be able to resell for a low down
payment and carry a mortgage on the balance?
You could then be happy to get a property back
and end up with a better deal.

Who is going to do the title search; who is
doing the appraisal? Have any of the properties
sold in the last 12-18 months to give you an
idea of recent FMV? Can you personally look
at each property?

What are the borrowers’ financial condition/
creditworthiness? Are there any late payments?
Are the notes seasoned? Why is the portfolio
seller selling? Look for warning signs.

Do you have an attorney or title company to
help you through the paperwork and escrow
procedures? If you are uncertain about what
you are doing, get competent help here.

How will late payments be handled? Look
for preventive procedures that will protect
your investment.

Do you have John’s video course? If not,
you would do yourself a great favor to get
it right away.

You didn’t mention what you are offering,
or is that not a concern?

Good luck with this. If it doesn’t turn
out to be a great investment, it sounds
like it will at least be a great learning

Re: Buying a portfolio - Some Help - Posted by Tim Kimball

Posted by Tim Kimball on March 07, 1999 at 10:39:50:

Thanks for answering my post. After some preliminary analysis, I have decided that there are 2 out of the 12 notes that I definitely do NOT want. One is a 3rd position, the other is a 2nd w/ 110% LTV. however, if I price the portfolio such that I esentially get the bad ones for free, then I’ll take them.

The LTVs in the portfolio range from 65% to the one mentioned above. There are 2 nice 1st pos. notes that I am thinking of simply making an offer for those only. The portfolio is of Florida notes which is good for me because I live in Tampa and I want to aquire notes locally. I was going to have a title company in the city where the notes are located do the abstract as well as finding a local servicing company. I want to stay local, by that I mean in the state of Fla. I haven’t made an offer yet b/c I’m not sure how to price the wraps. Should I look at net cash flow and then discount to a particular yield?

sorry this post is rambling so, I have too much info swimming around in my head. :slight_smile:

Re: Buying a portfolio - Some Help - Posted by David Alexander

Posted by David Alexander on March 07, 1999 at 20:38:29:

Are you buying these for yourself, brokering? If so wraps can be better than the other ones.

David Alexander

Re: Buying a portfolio - Some Help - Posted by Tim Kimball

Posted by Tim Kimball on March 08, 1999 at 07:34:03:

I am planning to buy for myself. What I need to know is: How do I price a wrap? Do I need to consider the spread in loan balances? Do I look at the cash flow only? I know that the main value is in the cash flow.

Re: Buying a portfolio - Some Help - Posted by Craig

Posted by Craig on March 08, 1999 at 13:56:19:


Go to and then to Lorelei’s library. Read “Wraparound Wisdom” and “Wraparounds Work”. You can first figure out how much you would pay if it wasn’t a wrap. Then you may be able to realize a higher yield by paying that price but not paying off the underlying. It’s not that complicated.

For instance I have a note with a $100,000 PV at 10% with monthly payments of $877.57 for the next 30 years. If you wanted to buy it at a 13% yield you would pay $79,332.12 for it. Now let’s say that it wraps around an underlying with a PV of $67,649.09 with 180 payments left of $726.96. If you buy my note and pay off that underlying I will net $11,683.03 and you will get a 13% yield. But if you don’t pay off the underlying and pay me 11,683.03 for my note you will have bought 180 payments of $150.61(877.57 - 726.96) followed by 180 payments of 877.57. If you buy 180 payments of 150.61 followed by 180 payments of 877.57 for 11,683.03 then you will have a yield of 19.37%. Just make sure the payment you receive is less than the one you must make, and the that there are as many payments as or more than coming in as there are going out.