All Forum Posts by: Mike Hartzog

Agreed. :-)

Holding notes is one of the best ways to utilize an SDIRA in my opinion.  It can, however, get messy when one of them defaults, so be careful of the re-performers.  Make sure they are well seasoned, and have tax and insurance escrows established (for first liens).  Some of the more reputable sellers offer a warranty on the re-performing loans they sell and will buy back within a certain time frame if the loan defaults.  PPR, for example, does this.  Best to form relationships with established sellers rather than rely on the exchanges.

You are correct, it's real estate at this point.  The note details are no longer of concern.

@Amit P., I think

@Jay Hinrichs knows a thing or two about this type of note offering and may have some perspective to offer.

@Bob Malecki - Sorry Bob, I've got nothing concrete here.  My thought though is that if there is truly a taxable gain incurred in a mod scenario after having purchased at a discount, I think the strategy to avoid that would be to use payment plans and deferrals of arrears to help the borrower bring their loans current over time.  Also, if there is debt forgiveness as part of the equation, the paper loss from that could potentially offset some or all of the the "gain" from the mod. 

Dan's comment got me thinking that the accountant may be talking about debt forgiveness being a taxable event for the borrower, not a taxable event for the  lender.  That does make sense.  Can you clarify Bob? 

Makes little sense to me.  If a modification improves the value of the asset, but that value has not yet been realized as income, how is that a taxable event?  The borrower may never pay a dime yet you have a tax obligation?    

Note buyers are looking for yield, so a higher interest rate will reduce the amount of discount you would need to take. The other thing buyers will look for is security, and 90% LTV is definitely on the high side. A larger down payment would help. Also, if you hold the note for 6 months or more to establish a payment history, that will also help your resale price.

Sorry about that.  This link should work.  Use the RATE formula to calculate yield.  Reduce your payment amount used in the formula to account for servicing costs.  Here's a sample spreadsheet which includes examples of the formulas.

Edward and Chris have good points.  One must take expenses like servicing into account when calculating yield, as it will have a significant impact for loans with small P&I payments.  Because these costs can vary from servicer to servicer, or you may be planning to self service, note sellers like PPR  cannot be expected to factor them into a yield number for you.  Here's a blog post that may help you calculate yield on your own.