Posted by Tim (Atlanta) on January 29, 2001 at 06:44:03:
Let’s take a look at the note and see if a buyer would be interested. At the end of this, you have a note with a face value of $10,500, 12% interest, 36 months at $348.75 per month. The note buyer is going to look at several things. You don’t mention the credit of the buyer, but that could be important. The down payment, 10% is fair. Now look at the return. You currently have $7900 in this deal ($8900 - 1000 down). You would want to make a profit for your time, right? Let’s just say $1000. So you want $8900 for a $10,500 note. If you use your financial calculator, we come up with a return to the note buyer of about 24%. That would be okay in some situations, but not in this one. The main problem you would have is the Investment To Value ratio. Here we take the wholesale value of the home (I am guessing at about $7500) and compare it to the amount of money the note buyer has in the deal ($8900). Unless you were to offer some other incentives (cross-collateralize with another note), I don’t know of a note buyer that would be interested in that note. You see, the note buyer would have more money in the home than he could readily get for it if he needs to sell.
Just my .02