Seller Finance - Early Repayment Request From Note Holder

[Matt Inouye]

Hello BP Community,

I have been approached by the holder of a seller-financed note (for a property I purchased from them) asking if I would be able to repay my note earlier than agreed.  They understand that it would have to be at a discount to the amount owed and would need to make sense for me.

There is roughly $360K in unpaid principle @4.00% and 311 monthly payments remaining. The monthly payment amount is about $1,800/mo. Am I in the ballpark that if I purchase this for $110K today, that it would yield about a 20% IRR? And also, since I am the borrower, am I correct in my understanding that I would be subject to a tax on cancellation of debt which would lower my total IRR.

I saw many years ago (like in 2017) on BP that note investors were shooting for 10-12% IRR in a zero-interest rate environement. Is it safe to assume that with rates much higher, that the target IRR is now in the mid to high teens?

Is there anything else from seasoned note buyers that I might need to consider before attempting to work a deal? 

I appreciate all of your help in advance.

Thank you!

Matt

[Chris Seveney]

Quote from @Matt Inouye:

@Chris Seveney

Yes I am the borrower and the debt is mine.  The note holder is asking if I can pay off the loan faster.  

I just want to make sure that if I do work a deal to pay off the debt earlier that 1) the calulations I am using are correct and 2) that the return would make sense to a professional note investors/buyer.

 I guess we would need to know when it matures, but since its you paying off the debt vs. him selling the loan, I would be happy with $100k discount, refinance at todays rates and then refinance again later if rates dip further. Yes as a note holder that if he sold it institutaional would probably sell for 70 cents, to a smaller investor the discount would be so much it would not make sense for them.