When selling a note what is the best way to determine value?
The note is a 1st position 7% 10 year contract for deed at 56% LTV with 7 years and 10 months left.
Original purchase price: $138,000
Down Payment: Buyer put about 36% down ($50,000)
Monthly payment: $1021.75 plus taxes and insurance. Has paid on time every month.
UPB $74,359.00. Collateral value $160,000+. About 46% LTV.
House being financed is a brick front approx 2k sq ft lakefront home in Lilburn Georgia.
I'm no expert, in the note space, but have been studying on it for quite some time.
If your investor buying the note wants to yield 12% he would work backward to figure his purchase price.
For Example: Term is 7.83 yrs, PMT 1021.75, Yield Desired 12%... we solve for Purchase price using a financial calculator and we get $62,059.85.
This means his/her all in price would be $62,059.85 to yield the required 12%.
Lets say closing costs and boarding fees to take over the loan are $1k for numbers sake. The investor would discount his offer price accordingly and put in an offer at roughly $61k so this the net yield would be the required 12%
So I would say for an investor that wanted a 12% yield your note would be worth 61k.
Hope this helps.
@Jeff V. Yes thank you that is quite helpful.
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