Selling a bundle of Notes

[Rick Pozos]

Asking for a friend. He has about 20 notes where he purchased land and made a mobile home a part of the real estate. He says, "Land/Home package." He is legal and does everything right. He has his RBI. He sells with 10% down and offers 10% interest rate on the land/home package. 30 year regular type of home mortgage. The homes are move in ready, they are moved, set up, water, septic, etc. Buyers are usually 600 credit score, but they are putting 15k to 20k down.

He wants to know what kind of discount is normal for this type of paper? The loans are usually 6 month to 1 year seasoned, good pay history, no issues. He just got a quote of 40% discount and almost lost his mind. What do you think is a normal discount for 1 year old paper of this type?

[Jay Hinrichs]

@chrisseveney can probably give you current pricing.

However you have two kinds of note buyers.. the Pro's  like Chris and mom and pop like the note buyer your friend is trying to find. 

I dont know what return the pro's would be looking at with this paper but I have to think 15 to 20% return maybe some will want higher.. and if these are 30 year fully amortized then YES your friend is going to take a very large discount to cash out now.  So rick just run a note program asking what one pays for a lets say the note is ( 150K terms are 10% amortized over 30 due in 29) and you are the note buyer and you want to make 15% on your money per annum it will spit out the price to pay for said note.. .  Every note buyer I know will want a discount for sure its just how much.

PS he may want to sell a partial interest so the haircut wont be so bad .. Or if it was me I would be going to my Commerical Community bank were i do all my business and sit down with my Banker and request a Hypothication. That way I dont sell the note but I use it for collateral and pull maybe 50% of the note out in CASH ..  I borrow at todays rate say 7% for this exercise and I am getting 10% so making money on the delta plus have the 50% of the note in cash to go do something else with.  This is how I exited my Timber land properties I logged in the 90s it was very hard to sell a logged over 40 or 80 acre tract for cash but easy to sell carrying paper and since the logs paid for the land I had no debt on the land once logging was done in 60 to 90 days. So I sell it hypothicate the note use the cash to go buy another timber property.

And with the hypothication my tax status remains the same.. long term gain on the note and a write off for interest I pay the bank.