Using Notes as Collateral - Posted by Steve
Posted by Steve on May 26, 2000 at 13:28:41:
Thank you for your response. You are very helpful and I, along with many at CREonline, are deeply grateful for your participation. I read your article on financing paper, but I guess the whole spectrum of possibilities did not register with me. I understand the concept of financing the purchase of notes, but it did not occur to me that if I already owned the note I could use it as collateral for a loan. In any case, will this scenario work? I purchase a $100k FMV house for $65k cash. I get a hard money loan to close the purchase. I now advertise the property for sale with owner financing for $110k, $10k down with the balance at 11%. Buyer’s credit is fair. I then get a loan based on 80% of the face value of the note and use the proceeds to pay off the hard money loan. When the dust settles, the underlying loan in the deal is the one with the note as collateral. I get some of my profit in cash and the rest in a monthly cash flow.
Also, I am looking to invest approx. $150k in a portfolio of notes yielding at least 18%. I have a mortgage broker that can feed me plenty of small seconds that will achieve this goal (15% rate, 6 points, 18 mo. balloon). Do you have any other suggestions? I know you call balloons “foreclosures in embryo”, but as an active investor I would not mind owning the property in case of default (as long as its a property I like). Thanks.