2nd position note - is this a good deal or not?

[Nick B.]

Hello all,

A couple of days ago I saw a 2nd position note offered for sale with the following parameters:

Property FMV: $178000
Property location: Illinois
1st mortgage balance: $138000
2nd mortgage balance: $46000
Payment on 2nd: $293
Payment left: 357
Note sales price: $22900
12 months IRR: 14.6%

At first I got excited about 14% return and equity backing the note ($178K-$138K=$40K but the price of the note is $23K, hence $17K equity) but then I did some calculations and found out that the actual ROI is slightly over 5% compounded over ~30 years. In essence, this note has the same payoff as a hypothetical 30yr bond with 5% coupon bought at par value. Not much considering that the interest rates may rise in the next 30 years.

Granted, this note may get refinanced or paid off a lot sooner than 30 years and I heard of average time being ~10 years. That brings expected ROI to 7.8%/year. Still waiting for 10 years until a payoff is a long time.

Another thing I did not like about this note is the property state. It is a judicial state and it takes 12-15 months to foreclose there.

So, here are the questions to the notes investors out there:

What do you think about this note?
Would you buy it or not and why?
Is this note priced too high, too low, or just right?
Is the note term (30 years in this case) an important or minor factor to decide if a note is a good investment?

Thanks
Nick