I wanted to check with folks to understand whether folks include monthly service fees when calculating yield on the note. One option is to deduct the fees from the monthly payment you receive from the borrower. The followup question is do folks also deduct tax and insurance when arriving at yield
I usually take out at least $15/mo. for servicing from the P&I payment when doing my calculation. T&I is not deducted.
R Trounday I take out servicing fees AND collateral storage fees on a monthly basis. I also in my calculator include the costs of my BPO/ collateral review / boarding etc. I take all my costs into account when calculating my return whether it be on a performing note or non performing note.
If you do not your lying to yourself as those are real costs.
Now to come full circle - when people mention to target 12% I know many sellers price the asset based the gross return prior to these fees.
Chris and Bob are right on and I'll just add that servicing fees have a much bigger impact on yield on notes with smaller monthly payments.