How much %YIELD? - Posted by Charles - DFW

Posted by Reif on April 01, 1999 at 06:36:42:


Could you please explain the preforeclosure note yield?

I assume this is when you are lending folks the money to catch up their back payments.

I guess I’m not following how you get 21% on these.



How much %YIELD? - Posted by Charles - DFW

Posted by Charles - DFW on March 28, 1999 at 02:29:32:

I am looking at buying some small ($2-5K) performing 1st or 2nd lein notes.

Assuming an LTV of %80 or less, how much should I be looking for as far as yield?

What should I look for as far as seasoning? Minimum acceptable? How much should this effect yield, from both sides (less time and more time)?

Thanks for your help!


It’s a function of supply and demand, need, cost of funds, etc - Posted by John Behle

Posted by John Behle on March 30, 1999 at 10:13:25:

If you are looking to buy for your own portfolio, then the yield depends on:

  1. Supply and demand - What can I get - and negotiate

  2. Cost of your funds - If it’s your capital, where is it coming from, what is the cost, what is the “opportunity cost” (what other safe rate could you invest at).

  3. Cost of borrowed funds - If you are borrowing from an institution or an ivestor, what is the rate. I look for a minimum of a 2% spread, but in some cases I have gone for a zero spread just to get an investor involved to then make money on future deals. It’s possible to even pay an investor or institution higher than your yield on a note that you can turn or improve. Don’t speculate, it would only be on a sure deal. For example, we had an investor years ago that had a minimum yield of 18%. No way! Yet, I wanted to get him involved, so we found a way we could use his funds to buy notes at a 16% yield that we could broker (or borrow against) within a year at a 14% yield. In that case, we are dealing with the spread. It isn’t a matter of yield, it is wholesale/retail with “flooring cost”.

  4. NEED - How much do you need to invest the funds? At times, yield can be driven by whether you have excess funds just sitting or would have to scramble to free some up. I sometimes accept short term yields as low as 21% because there are excess funds waiting for notes. 21% is not a mis-print, that is reality in today’s marketplace if you know what you are doing.

%Yield & Risk - Posted by Charles - DFW

Posted by Charles - DFW on March 31, 1999 at 22:08:37:

Thanks for your response.

I called on an add selling performing 1st & 2nd lein notes. He faxed me a spreadsheet of the loans he was selling.

Most of them were 2nds, at 5% LTV with a CLTV of 90-95%, and 13-14% interest. Most were 180 payments, and 6-12 months old.

I asked him what kind of yield I should be expecting and he said he normally does a little more than 18%, but because these have seasoning, it should be a little less.

I really didn’t think 6-12months seasoning was that significant. Plus isn’t a 90-95% CLTV very risky, more risk than I should take. The credit rating of the borrowers was listed as A to A- with some Bs.


Re: It’s a function of supply and demand, need, cost of funds, etc - Posted by Reif

Posted by Reif on March 31, 1999 at 01:28:46:


Is the 21% yield that you are getting the actual yield off your purchase, or an average yield once you have fixed up the note?



Base yield - Posted by John Behle

Posted by John Behle on March 31, 1999 at 20:03:04:

The 21% is the base yield. Many of the deals are pre-foreclosure deals with good LTV ratios. Others are small notes from a retail operation.