Explanation

3 Replies

Hey BiggerPockets Community,

I ran across a sparsely worded ad on my local Craiglist and was hoping someone could break down for me what is being offered by this individual.  I'm not looking to invest as much as educate myself:

-First Mortgage Note /70%LTV/12% ROI
-$41300 balance/12months seasoning with cancelled checks
-Home appraised value $59,000

I think that this individual is looking for someone to hold a note on the property and pay them interest, but can only guess at what everything else means.

Thanks in advance.

Brett

@Brett DeLine

The ad is still a bit vague and missing some numbers like how much the current monthly note payment is. The 70%LTV is Loan To Value so he's selling the note of $41,300 divide by value $59,000 = .70 Due diligence on the note balance would be easy to check, but I would be concerned about the "appraised value" who appraised it and when.

The 12 months seasoning with cancelled checks means he as held the property for 12 months and can provide cancelled checks to show the previous note payments. I do not know where he came up with the 12%ROI or Return On Investment.

Hope that helps some.

Travis

@Brett DeLine

I can give some insight but I strongly suggest that you get a "second opinion" from someone with more experience than me.  Taking it line by line:

-First Mortgage Note /70%LTV/12% ROI

The note is the primary mortgage, not a second. (Or third, or fourth, or an equity line) firsts usually (not always) represent "purchase money". That is, the money used to buy the house. This is important because the first gets paid before subsequent loans. 79% LTV (Loan To Value) is the balance of $41300 divided by value of $59000. 12% ROI (Return On Investment) is what the Craig's List poster believes your return to be if you purchased the note.

-$41300 balance/12months seasoning with cancelled checks 

$41300 balance is the principal that remains outstanding to be paid and the basis from which interest due will be calculated.  Twelve months seasoning means they've received twelve months payments and have copies of the borrowers checks to prove this statement.  It MAY (just MAY) imply that they are servicing the loan themselves.  If they are servicing the loan themselves, it is a red flag unless they are licensed to do so or have a TON of experience.  The documentation should be reviewed by a reputable servicing company or other qualified entity in ANY case BEFORE a purchase, but ESPECIALLY this transaction to assure all the documentation is complete and adheres to all regulations.

-Home appraised value $59,000

Self explaining.

Some very important information is missing. Term (the date the loan is paid off if all pmts are made when due) the Interest rate, the address (you don't want a note secured by a property in the middle of a very high crime area, etc). Without that information you can't verify the stated ROI.

I hope this is helpful.

Bill

805‑300‑6918

Thanks Travis and Bill, super helpful.

Brett