Partials and LTV ratios - Posted by Joseph Turner
Posted by Joseph Turner on May 26, 1999 at 18:10:54:
I wanted to run a patial scenario by you to see if this is
realistic. A seller owns his 85,000 (this is at fmv) house free and clear and wants to
sell and will carry the financing. However he needs 15,000 cash. A buyer
can only afford 5,000 down leaving a note of 80,000. Assume the interest
rate is 11.22% ( I realize that is really high…but it is for illustration
purposes) translating into 775 monthly payments.
If i was to offer the seller 10,000 for the first 3 years of those
payments, would i be able to flip it to another note investor or company
even though it has absolutely no seasoning? The present value would be in the neighborhood of 23,500 dollars. The reason i ask is that it
doesnt seem that risky in that assuming foreclosure, bankruptcy or
default or whatever, the holder of the partial would be compensated no
matter what since his obligation would be satisfied first. Am i missing
Also, I am a newbie so maybe this idea is not feasible…but could i try to get the owner to take a partial like this:
First = 55,000@ 11.22% 360 pym 532.94
Second = 25,000@ 11.22% 360 pym 242.25
I buy the first four years of the first note for 10,000. The present value = 20,535
In this example, would the LTV now = 64.71%? (ie 85,000-5,000down-25,000 second/85,000 balance)
Also, i could sell the idea like this:
- you get your needed 15,000 cash
- very little princ. is paid off on first note.
- you will subsequently receive the 532 dollar payment for the remaining 26 years
- you will still receive some income from the second
I get a great note at a great LTV with a very secure position that i wouldnt have been able to get because the original ltv was 94%
Everyone is happy right? Am i missing something?
PS-John, this scenario is not utilizing your comepensating note technique that you advise.
PS-John, please disregard my email to you from firstname.lastname@example.org