David: Structuring a MH sale/note sale. - Posted by Jason (AL)

Posted by David Butler on March 31, 2006 at 17:57:32:

Hey Brandon,

Right… this was presented as an “amortizing” note, which has a much different calculation that a straight note (principal and interest all due in 36 months); or an interest-only note (interest paid monthly for 35 months, plus final payment of all principal and last month’s interest due).

Amortized loan or note interest is typically compounded by the payment periods or annually, depending on the terms of the note. For example, if payments are made monthly, interest is compounded monthly. If made quarterly, then interest is compounded quarterly. The cutoff is annually, as that is the maximum calculate period of time.

With the straight note and interest notes, the interest is compounded annually, or no compounding annually - again, depending on the terms of the note.

Good call on picking up a financial calculator! Those little things put some real POWER right at your fingertips! And you’ll find the User Guide that comes with it to be very helpful in providing more in-depth discussion of the points I presented above.

Best wishes for your success, and Many Happy Returns!

David P. Butler

David: Structuring a MH sale/note sale. - Posted by Jason (AL)

Posted by Jason (AL) on March 30, 2006 at 18:46:46:

Hey David,

I was wondering your thoughts on this type of deal…

Seller wants/needs to sell MH
Asking: $2,000 cash

An investor/dealmaker doesn’t want to purchase the MH him/herself, but sees a win/win/win/win opportunity.
Instead of buying the MH, the investor/dealmaker has the seller to sell the MH with owner-financing for $5,000/ $500 down.

Terms: $4,500 12% 36 months. PMTS = $149.46/mo.

The investor/dealmaker contacts someone wanting to beat the banks’ 1-2% returns and offers this note (entire/not partial) for $2,500.
Yield for them is 58.99.

Of the $2,500, the seller of the MH receives $1,500.
This, coupled with the $500 from the downpayment gets the seller their $2,000 cash. The investor/dealmaker earns a shiny nickel ($1,000) for structuring the deal.

win(MH seller gets needed cash)/win(dealmaker makes $$ @ no risk)/win(note purchaser gets excellent return)/win(someone gets a roof over their head, low down & easy terms)

This is feasible, yes?
Critiques welcome.


Re: Right Track! - Posted by David Butler

Posted by David Butler on March 31, 2006 at 17:48:50:

Hello Jason,

It is feasible to some degree, and you are on the right track.

But a couple of considerations that we bring up frequently in MH note discussions:

  1. very limited investor interest in simultaneous closings in the MH note sector. Most of us like to see at least 4 months seasoning, with 12 months seasoning preferred.

  2. very limited interest on notes that small, unless sold in a bundle (portfolio) of notes in the same locality, with higher total remaining balances. In our case, we prefer at least $40,000 in total remaining balances as a minimum number for more than one note. For one note, we want a minimum $15,000 remaining balance on the note, and security generally located within 2 hours easy access.

Using a local investor is a solution to the second issue; and in some cases it could also be the best answer for the first issue. We teach our own students to learn how to invest with smaller notes such as these, where they live.

Hope that helps, and thanks for asking. And best wishes for your success Jason!:slight_smile:

David P. Butler

yield? - Posted by brandoncbsre

Posted by brandoncbsre on March 31, 2006 at 04:36:55:

I think most people figure yield as a annual number. That would put the yield more in the 21-21% range. Which is still better than the bank, so I think if you can pull it off go for it. Better yet buy the note yourself for $1500, that would put the yield in the 35% range. Please correct me if my numbers are wrong.

Re: Right Track! - Posted by Jason (AL)

Posted by Jason (AL) on March 31, 2006 at 22:09:09:

Thanks David for your input.

Just keeping my outs open on this one.
My reason for this route was being that I didn’t want to buy the MH personally, neither does the investor.
Something needs to be done, and this is the only way I see to help…everyone.

I’ll have to keep my eye open for your Tin Can Alley.
It may come in handy one day.

Til then…

Re: Right Returns! - Posted by David Butler

Posted by David Butler on March 31, 2006 at 17:38:23:

Hello brandoncbsre,

Bad news unfortunately. Yep… you are wrong.

We typcially use what we call a TVM (Time-Value-of-Money) template when showing note math calculations like this, so let’s use that approach for you here to explain.

Jason describes a note that looks like this at origination:

Present Value = PV = $4,500
Interest Rate/Yield = I/Y = 12%
Payment = PMT = $149.46
Term = N = 36 mos

The solution we are looking for now, as presented by Jason, is “What would the yield be if an investor only paid $2,500 for that note?”

Present Value = PV = $2,500
Payment = PMT = $149.46
Term = N = 36 mos

Solve for yield following the operating instuctions in your financial calculator’s User Guide, to get:

Interest Rate/Yield = I/Y = 58.99% (60% rounded)

Hope that helps clear things up for you on this point.:wink:

Have a great weekend, and Many Happy Returns!

David P. Butler

David? - Posted by brandoncbsre

Posted by brandoncbsre on March 31, 2006 at 17:48:23:

Obviously that can’t be the annual yield. I guess I look at things differently and try to figure things on an annual rate of return. I am kicking around the idea of note investing, I probably should pick up a Financial Calculator.