First time buying a partial mortgage note?

4 Replies

Yield.

But a few things...

1) That is up to what you desire for your money.

2) If you are asking what others would desire, double digit yield typically

3) If you are asking what you should expect, then it really depends on alot of things.. You can make a high yield but the collateral may be high risk, the ITV may be high, or the monthly payment may be a low dollar amount which will be eaten up by servicing.

It would be better if you had brought a potential deal into the forum so we can help you eval it vs this kind of open ended hypothetical question.

@Terrence Evans

At $5k I would expect 6-8% - if it was more may get 9% but tough getting double digits

Reason why so low is an investor cannot do anything with that money. A reason for partials is to control the asset and hypothecate off of it to reinvest. $5k does not really do anything for the investor selling the partial

This is just my opinion and how I would treat it.

@Chris Seveney - Institutional note buyers usually expect higher returns for smaller investments. Underwriting and servicing costs are fixed. For that reason, they need more on the front end. I take a similar view.

Not sure of your specific situation but here is a scenario for you to consider. If you were to buy a partial from another investor for $5,000 and receive a net monthly payment of $325-$330 to you, your yield would be around 6-8%. I believe Chris Seveney is right for 6-8% being the going rate on a partial...especially with interest rates at historic lows. However, this partial would only be for approximately 16 payments and remember the monthly payment includes the return of your $5,000.