How to value note?

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I write lots of paper via self-directed IRA, typically for flips, but I also hold a $50k 2nd on a small commercial property. I am 12 months into 60 month balloon, interest only at 9.6%, $400 per month. 1st position lender is same terms as me and has asked me if I am interested in taking him out. Obviously would like to buy it discounted if I can, but have never bought a note before, no idea if this warrants a discount? Both loans are current, all direct deposit from borrower, property value around $200k.

There is no hard and fast rule on this.  Seasoned note buyers will generally have established criteria and are looking for a particular minimum yield, so the offer would discount enough to achieve the target yield, assuming there are no other issues present that would warrant a deeper discount.

The first position note is more valuable than your 2nd with the same terms, so one could make the argument that since you were OK loaning on a second position at those terms, a 1st at the same terms would be a better deal.  On the other hand, the seller clearly wants to sell, so you might pick a yield like 12% and discount to that for your initial offer. 

With a seasoned 1st lien note that is 200k, you are looking to pay 70-90%of BPO value on that note. The value will depend on the term of the note and payment history. Typically, you will have a bigger discount on a note that has longer term and it is earlier in its payment history. So lets say a 30 year performing note that originated 5 years ago will have i deeper discount than a 1 year old note with a 5 year balloon.

EDIT: collateral value, note performance, borrowers credit history, location, interest, down payment, and quality of origination paperwork will drive the price of a note.

Higher value collateral, good credit, bigger down payment, up and coming location, and simpler paperwork will raise note value,