Looking for sage advise from seasoned note investors, what are some the criteria that you use when evaluating a partial purchase of a performing note. I suspect that is the much the same criteria when purchasing the full note. Are there any nuances with partials that I should be aware of?
Partials are great investments, both for the buyer and seller. The same due diligence you would apply to a note purchase, is the same used on a partial. This is because the partial is really just a "piece" of the note.
Yield is the best way to analyze the income potential and what your invested money is earning. Other thoughts on a partial is to make sure the amortization schedules are clearly spelled out, preferably in the purchase contract. There will be Amortization schedule A, and B.
A is the buyers amortization, and B is the debtors.
Having these clearly spelled out will show at any point in time who is owed what money, in the event of a property sale or early payoff (which do happen).
Here is a great resource explaining partials. I have no affiliation with this company: http://noteinvestor.com/buy-notes/calculating-earl...
One more thing I forgot to add, is to have clearly laid out in the purchase contract, how a default is handled, and by whom. The buyer or seller?
Defaults do happen, so it's important to prepare in advance. Most do not default, but the buyer will want to know how a default situation would be handled, and how money would be recovered. This is easy to address in the purchase contract.
Also conduct due diligence on the borrower and his/her employment or other income for ability to continue to make the loan payments.
Excellent. Thanks Bob and Joshua
@Ray Trounday Did you buy any paper? How did it turn out?