Posted by Sean on May 05, 1999 at 18:05:16:
Let’s say there’s a $100,000 house with an 80% first loan and a 10% second loan. The terms of the second loan is 120 months at 9.5% interest with payments of $129.40/month. This was a standard 80-10-10 loan where the guy put down 10%, got a bank loan for 80% and the seller carried the other 10 percent.
Based on these numbers you can put them in a calculator and work out the right amount.
PMT = 129.40 (that’s the amount of the payments)
FV = 0 (the loan will fully pay off in 120 payments)
n = 120 (120 payments)
i% = 36% (that’s the yield you want)
PV = Your calculator will solve for this.
In this case it’s $4,189.07 or about 42 cents on the dollar. That’s a pretty deep discount, but if they are that anxious to sell that thing they’ll probably find you’re the only buyer in town.
If you did this all day long and if one mortgage out of 4 defaults you’re still getting better than a 25% yield.
Sick to death of 2nds! - Posted by Tim Kimball
Posted by Tim Kimball on May 03, 1999 at 14:39:37:
It seems like the only thing that crosses my desk with any frequency is a steady stream of crappy 2nd position notes. The most enjoyable part about it is the sellers usually want face value or they have shopped it all over the planet. I think my marketing is to blame. But, I keep thinking there has to be a better way to deal with 2nds. Anybody got any special techniques that make money with 2nds?
Re: Sick to death of 2nds! - Posted by Bud Branstetter
Posted by Bud Branstetter on May 06, 1999 at 16:57:06:
Since these people are not likely to sell these sections for much, why not get an option. Give them the right to continue marketing with you having the right of first refusal. Now, while they continue to try and find a decent price you go out and find a property that you can use the discounted 2nd as part of the down payment at face value. Then you could go to your bank and trade them some of those notes for one of their repo cars. Pick over the ones that have the better credit and with some aging there are buyers up to 90% ltv. Got any of those optioned notes in the Dallas area?
Be more specific - Posted by Sean
Posted by Sean on May 03, 1999 at 17:43:38:
What exactly is wrong with these seconds?
Re: Be more specific - Posted by Tim Kimball
Posted by Tim Kimball on May 04, 1999 at 08:10:01:
Theres no equity. Usually you have a collective LTV of around 90%-95%.
Re: Be more specific - Posted by Sean
Posted by Sean on May 04, 1999 at 08:43:32:
Buy 'em. Quote those guys a 36% yield.
Please clarify 36% yield - Posted by BKarnes
Posted by BKarnes on May 05, 1999 at 17:44:57:
In a situation where there is a note (first or second) let’s say for $100,000 (a nice even number) where the LTV is 90%-95% what would a 36% yield be?
Thanks