Expected yields? - Posted by Reif

Posted by Mark (SDCA) on March 23, 1999 at 12:14:46:

Could you post some info on you note buyer?? I have talked to quite a few note buyers in the past couple of weeks and not found any satisfactory ones. The vast majority of them wanted 10% down for NOO and then a 5% discount on top of that. If I am putting 10% down, why would I pay a discount? I can go to any mortgage broker and get 90% loans with no discount. Also, these note buyers were basing the LTV on sales price not FMV. No help there either.
The only “creative” plans I saw involved seller carry. (75/25 etc). I would gladly “settle” for a 95% loan with a 5-8% discount. (Though obviously I would prefer better.)
Anyone??? Thanks,

Expected yields? - Posted by Reif

Posted by Reif on March 23, 1999 at 01:02:34:

>>Posted by Craig on February 23, 1999 at 17:54:42:

In Reply to: Re: flipping and seller financing posted by Stacy (AZ) on February 23, 1999 at 16:20:58:


As far as institutional note buyers go, there are very few of them. Most require some sort of minimum discount from the note. 1% or .5% added yield above any interest rate. I just recently got in touch with one that buys par(no discount). They just recently started going up to 95% LTV/ITV. They require a 1% discount however, if you increase the interest rate by a quarter to half a point then they pay par. They will even allow you to increase it so they pay above par.<<

Sorry I’m a new guy coming so late to this party, but - hang on a second!

Are you saying that there are people out there buying firsts for 1% above face return!?

Jiminy crickets. Are the returns (18-24%) that John talks about in his courses now gone?

I guess I need to find out what the new market is.

Anyone got a hint on that?


Re: Expected yields? - Posted by John Behle

Posted by John Behle on March 23, 1999 at 16:05:06:

Yes, the days of 18-24% yields are gone - for the average note buyer and broker.

When I began buying notes, the yields were actually higher than that on a regular basis. Are they gone? No - I still get those types of yields today. It’s a matter of marketing, being creative and finding and funding notes in a different manner than most.

Sometimes that looks like hard money loans and sometimes it is defaulted or “problematic” paper. Sometimes it is smaller notes and deals that have to close quickly.

The only way most people know how to do notes is to either sacrifice yield or safety. Right now institutional buyers are doing both. There is a lot of competition and the funding sources are pushing the boundaries of good sense.

Some are going higher on their LTV’s that they will accept. Take advantage of that right now. I predict it won’t last, but who knows.

I deal with local deals and local funding. Outside investors and brokers would not and could not do the deals I do. Most are too slow, so that is a part of it. I’m in and out before they know a note is available. Some are too hung up on credit. I’m hung up on LTV ratio. The property will always pay me. Never bet on the people - bet on the collateral.

Most are left out of the loop because of marketing and creativity. The national funding sources are pretty much dependent on the “Flippers” out there that are being churned out of the week long infomercials. Without them and the national conventions, they would not exist.

Most of the people churned out of the seminar mills have little clue how to really market their services as a note broker. Few have any knowledge of how to market themselves as a full service funding source for real estate and financial services.

Most of the best note deals are created not found. There is no competition if you are creating the paper and there is little competition of any kind on “problem paper”. Be a problem solver and you have the edge nobody can beat.

Re: Expected yields? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 23, 1999 at 15:17:09:

I think this fellow, replying to a question I had, was speaking from true experience. My understanding is that if the note you are selling carries an interst rate of 12% or so, the institutional buyer he found is interested in buying with a 1% discount. If you raise the interest rate in the note to 12.5%, they will pay par, if you raise it to 13% or so, they will pay more than par. Of course you have to speak to the note buyer to find out the current break-points. Dealing directly with institutional note buyers skips the middle-man broker, who needs to add his profit in as well.

I’ve seen ads from institutional notebuyers in the NoteWorthy newsletter that speak of 12% notes, but someone else will have to chime-in who has real experience. I would guess those notes have to fit a very tight screening process (A-credit payors). I’m still on the outside, watching and learning.

I thought the 18% to 24% yields John speaks about are achieved after correctly buying notes for your own portfolio…and are typically notes with less than perfect payors, etc. I’m intersted in seeing what some of the experienced note buyers post in reply.


Institutional note buyers