Any way to convert a silent 2nd into cash flow?

Question

Matt Devincenzo · Answer

Sure this is the old 'J G Wentworth' we buy (insert long list of slow or future payouts) at a big discount to create a ROI. It's just a time value of money question...you'll probably need to provide an investor with ~12%+ return. For context if your future payout is $40.8K I could give you 60 payments of $500/mo (~$30K total payout). That achieves around a 12% return (quick math so my numbers may be a bit off). But you get the picture, you're going to take a 20-30% haircut depending on the structure of the 2nd, and the structure of the payout you're trying to achieve.

Beth Johnson · Answer

@Scott Trench - I'm not well versed in selling notes as all my capital partners who lend out their capital through us tend to keep their loans because they want the passive cashflow. In my limited experience, performing notes are still sold at some sort of discount whether that is in the form of an interest spread or a reduction in the principal amount or both. I'd say there's even less of a market for junior liens as many investors are gunshy about those due to the perceived increased risk and potentially lower equity buffer.

Matt Devincenzo · Answer

Look at some of the past posts on note sales and sourcing and you should get a decent list. A couple are Paperstac, debtexchange, notesdirect LoanMLS, Watermark etc. You may also get some traction here on BP as there are several note investors on the board that actively buy notes.

Sean Dezoysa · Answer

@Wayne Brooks A silent note has no payments made against it until the final balloon.

Thank you for that @Matt Devincenzo! I'm not well versed in note sales, any pointers where to go to sell them one at a time?

Wayne Brooks · Answer

@Sean Dezoysa What you mean by a “silent second”…an unsecured note?

Scott Trench · Answer

Really interesting question - I'd be curious what @Beth Johnson thinks here. My guess is that the secondary market for private notes like this is not going to be highly liquid and you would likely have to sell the note at a discount, unless you were pretty patient.

Any way to convert a silent 2nd into cash flow?

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