Re: finding money (very long) - Posted by Tim

Posted by Tim on June 21, 2007 at 14:03:43:

I’m going to have to make a couple of assumptions here, so my numbers may be way off. The first, & biggest assumption is that the lots are actually worth 15k. In other words, that they would sell for that on the open market without owner financing. Without that a bank(or private lender) won’t even consider the loan.

My next assumption is that the average term of the loan is for 10 years. This is based on your $24k average amount paid over the life of the loan, $500 down & $50/week. Simple math [(24K-500)/50] gives 470 months, or 9.04 years. I’ll round that up to 10 years.

Finally, I’ll assume that you instantly sell the remaining lots, increasing your cash flow to $6200.

So, as a note buyer I’m looking at the following:

$290,000 present value

10 year term

$6200 monthly payment

for an interest rate of 23%

I know this is a simplification, but I don’t see how the yield will vary by more than 2-3% in either direction. I strongly suspect you are looking at a $290k purchase that will pay $888k over time, ignoring the actual yield. If you look at the deal from a note buyers perspective, figuring borrowers with marginal credit, this may not be a good deal. The truth is, you are buying what are probably subprime loans at 55 cents on the dollar.

Putting on my hard money hat, you want to borrow $230k on a property worth 540k(36x15,000), or 43% loan to value. If the value is there I would consider it, but I’d be looking for 5 points up front & 15% interest(minimum).