How do note investors determine As-Is value? What % will you buy at?

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How do note investors determine As-Is value? What % will you buy at?

Sam Tright
Member since 2022 · 53 posts · 8 votes
1. Say a house is bought for $40k, $15k repairs needed. ARV $100,000. What is as is value? For a low priced house like this will you require an appraisal to determine it, or go off some desktop estimate?

2. Once as is value is determined, what percent of it would you consider as your collateral value when buying a 1st position note for say $45,000? If further details are needed please give an example and backfill your own example numbers to help me see the full picture.
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Peter Halliday
Rental Property Investor · Arlington Heights, IL · Member since 2017 · 243 posts · 108 votes
3y

As-IS value is how much you’d have to sell the property for if you don’t want to do the repairs.   I determine by doing a Broker Price Opinion (BPO).   Paying a realtor to take exterior pictures and looking at comparable sales.   Often they list amounts in terms of how long you’d have to wait in day    often the realtor is more local than you are.    

I don’t bid as a percentage of As-Is value.  I look at Unpaid Principal Balance.  But i looks at Loan to Value too.   What’s more relevant to me for Non-performing loans is there’s a big enough cushion between my bid and the as is sale price.  Unexpected costs come up.   The small dollar loans can have very favorable percentages.   But still not enough money differences.  In situations like that you can lose money in a blink.  
 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Sam Tright

    ARV is irrelevant in note investing.

    When you are the lender your concern is as-is value. For example if the balance on the loan is $45,000 you want to understand the value as your bid should be the lower of the unpaid balance or property value

    Let’s at you bid 50% of value if the property was worth $100k your bid may be $22,500 (50% balance) but if property wa worth $30,000 your bid would be $15,000

    Value is a risk because you cannot get interior photos of property.

    How this helps.

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  • Peter Halliday
    Rental Property Investor · Arlington Heights, IL · Member since 2017 · 243 posts · 108 votes
    3y

    As-IS value is how much you’d have to sell the property for if you don’t want to do the repairs.   I determine by doing a Broker Price Opinion (BPO).   Paying a realtor to take exterior pictures and looking at comparable sales.   Often they list amounts in terms of how long you’d have to wait in day    often the realtor is more local than you are.    

    I don’t bid as a percentage of As-Is value.  I look at Unpaid Principal Balance.  But i looks at Loan to Value too.   What’s more relevant to me for Non-performing loans is there’s a big enough cushion between my bid and the as is sale price.  Unexpected costs come up.   The small dollar loans can have very favorable percentages.   But still not enough money differences.  In situations like that you can lose money in a blink.  
     

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  • Roy Oliphant
    Rockwall, TX · Member since 2014 · 380 posts · 211 votes
    3y
    Quote from @Peter Halliday:

    As-IS value is how much you’d have to sell the property for if you don’t want to do the repairs.   I determine by doing a Broker Price Opinion (BPO).   Paying a realtor to take exterior pictures and looking at comparable sales.   Often they list amounts in terms of how long you’d have to wait in day    often the realtor is more local than you are.    

    I don’t bid as a percentage of As-Is value.  I look at Unpaid Principal Balance.  But i looks at Loan to Value too.   What’s more relevant to me for Non-performing loans is there’s a big enough cushion between my bid and the as is sale price.  Unexpected costs come up.   The small dollar loans can have very favorable percentages.   But still not enough money differences.  In situations like that you can lose money in a blink.  
     


     Hi Peter, Thanks for your input.  I wasn't able to make sense of this thread until you mentioned "non-performing".  That put the above value discussion in the proper context.

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  • Chad U.
    Investor · Boca Raton, FL · Member since 2012 · 1k+ posts · 1k+ votes
    3y

    If you're referring to performing loans, you'd want to ensure that if you had to take the property back via foreclosure you'd be made whole on your cost basis. You need to take into account foreclosure, holding and selling costs.  

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  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Run a CMA on the MLS. If there are none, subtract the repairs from its ARV.

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