Selling performing 2nd position

[Victor Robinson]

If I were to agree (as a seller) to owner finance a portion a portfolio sale, but later decide I want the money out to reinvest, at what sort of discount would I likely be selling the note.

EXAMPLE:

Portfolio sale price: $1m

Owner finance 20%: $200k (take second position) 8%, 20 year amm, balloon in 5.

Let’s assume this is a performing note on a solid investor and principal balance is down to $190k with 4 years left to balloon.

How much would a note investor be willing to pay for this note? What sort of margin are they looking for in this sort of scenario?

[Andy Mirza]

Originally posted by @Victor Robinson:

If I were to agree (as a seller) to owner finance a portion a portfolio sale, but later decide I want the money out to reinvest, at what sort of discount would I likely be selling the note.

EXAMPLE:

Portfolio sale price: $1m

Owner finance 20%: $200k (take second position) 8%, 20 year amm, balloon in 5.

Let’s assume this is a performing note on a solid investor and principal balance is down to $190k with 4 years left to balloon.

How much would a note investor be willing to pay for this note? What sort of margin are they looking for in this sort of scenario?

 Are you talking about selling a portfolio of properties (rentals) and providing a 2nd mortgage to the buyer of the portfolio? Who would provide the 1st? If it's one of the private money, institutional rental portfolio lenders out there instead of a local bank, they probably won't allow the borrower to have any debt behind their 1st.

Even if you can do it, the strategy of providing financing by providing a loan and then cashing out by selling the note doesn't seem very practical. Arms length note buyers are looking for yield, which means they'll want to buy your note at more of a discount than you will want to sell it for. A better strategy if you need to sell is to lower your price and forget the seller financing.