Notes - SF, MF, Commercial - Can someone compare and contrast? - Posted by Joseph

Posted by Michael Morrongiello American Noteq on December 15, 1999 at 18:52:27:

Would included single family homes, duplexes, triplexs, quadplexes, etc. Also townhomes, condos, and single and double wide mobile homes WITH land

Different (ITV) investment to value ratios will exist for each of the different collateral types and also taking into account whether the payor on the note is an owner occupant or a non owner occupant / investor.

Your most desirable collateral is the detached Single Family Owner Occupied home. Most note funders (including American Note) will consider going as strong as 85% - 90% ITV on a VERY clean deal (excellent credit, employment stabilty, cash down payment, seasoning of payments, etc.)Other types of occupancy and collateral would be funded at lower more conservative exposure levels.

Would generally be any type of residential use property that has more than 4 units and less than 12. If the project has more than 12 units then it really is a commerical income producing property. ITV’s are again more conservative with this type of collateral generally under the best of circumstances being in the 70%-75% ITV range. Condition and location of property along with rent rolls and income become more important from an evaluation standpoint. A more extensive and expensive appraisal is require typcially.

These types of property can be consider “soft or light use” commerical such as 5-12 rental units, small professional office buildings, small retail centers, mixed use apartements with storefronts, etc.

ITV’s can also be in the 70% -75% range againg with a STRONG file with lots of posistives.

“Multi Use Commercial” would be more hard use commerical properties; over 12 rental units, bars and restaurants, hotels / motels, larger strip centers, larger office buildings or mobile home parks, etc.

A more conservative 65% -70% range for ITV is feasible ONLY under the best of circumstances.

When looking at notes and their quality several underwriting areas of concern are always looked at;

  1. Payor or proposed payor credit worthiness

  2. Cash money at risk (down payment)

  3. Payment history or seasoning to the note from None to a well seasoned note

  4. Condition and pride of ownership of hte collateral and overall area

  5. Finally, the actual terms of repayment on the note (interest rate, amortization term, balloon or no balloon, etc.)

Appraisals are typically always required to confirm that “real value” is there.

These are some of the issues that note funders wrestle with day in and day out when formulating a pay price for a note.

There is a distinct learning curve in becoming comfortable with addressing all of these areas of concern. It is many times best to work with an experienced note funding source to assist you and allow you to “earn while you learn…”

Hope this helps.

Michael Morrongiello
Operations Manager

Notes - SF, MF, Commercial - Can someone compare and contrast? - Posted by Joseph

Posted by Joseph on December 15, 1999 at 16:26:18:

Can someone provide a laymans description of the differences and similarities across single-family, multi-family, and commercial notes? For example, what are the definitions of each? How will the LTVs vary? Are there different things that are more important in terms of evaluating their value(e.g. does ones credit matter more or less with any of these)? Any differnces in due diligence, etc (including types of appraisals required)? Thank you.