Buying Seller 2nd's At A Discount
I own a mortgage brokerage company and specialize in 100% purchases and subprime credit refi's. I see many people trying to buy their first home and require seller financing which isn't common because of course most seller's want their cash (emphasis on most, not all).
Since these deal would be dead without some outlet for the seller financing, I am considering buying them using my fees from the 1st and essentially taking payments over time for my services. This would inprove my volume but also develop a reputation for completely difficult deals. One way to differentiate myself from the other 10,000 mortgage brokers out there.
My question is, what kind of discounts are typical? Now I realize it will depend on the risk, but are we talking 25% or 50%?
yzerone,
The short answer is, it depends. You control the yield, but you have to have a market. The larger the perceived discount, the more you have to be able to show compelling reasons why a seller should sell to you for a large discount (risks that you would be taking, seller desparation, weakness of borrower).
The longer answer is that note brokers typically take into account the following factors in determing the yield that is appropriate:
Risk factors:
-loan seasoning (the age of the loan)
-credit worthiness of the borrower
-payment history
-loan to value
Cash Flow/Profit Factors:
-payments
-future value
Other factors can also be applied, so I would strongly recommend spending time reviewing the forums here, at www.NoteWorthyUSA.com, and www.PapersourceOnline.com before jumping into this. There is extensive free and low priced quality information on all three of sites. Reread the prior sentence before spending any money for some $2k to $5k cash flow or note brokering course.
I would say you are right in the ball park. I'm brokering a second lien note right now and its going to sell for 35 cents on the dollar. Usually there are alot more risks involved with seconds, and the discounts reflect those risks. Thanks,
Nate
I would say you are right in the ball park. I'm brokering a second lien note right now and its going to sell for 35 cents on the dollar. Usually there are alot more risks involved with seconds, and the discounts reflect those risks. Thanks,
Nate
So lets say I buy a 100K property. Bank Finances 80% and seller does the 20% @ 8% int on a 10 year loan. When someone says they pay 50 cents on the dollar is that 50 cents on the dollar for the $20,000 2nd or 50 cents on the dollar for the $20K + the interest received over those 10 years? (29K)
The 50 cents on the dollar is for the 20K and not the interest. If you get 50 cents you have done good. Take the money and run. I just completed a deal that went for 35 cents. The noteholder was more than happy. He is a builder and will have more of these on the way. He knows the discounts involved and is motivated. Two key elements in any note deal. Take care,
Nate
So if I were to buy the 10 year note for 35 cents on the dollar for $7K. I would then receive 29K in interest & principal over the next 10 years for a profit of 22K or 31% a year??
ROI is beautiful, esp when the money you use to buy the note comes from fees on a loan that nobody else could do allowing the legal maximum in fees to be charged + the money made on the discount.
M.j. How are you? Good posts in here. I am brokering a second right now on a motel in Nevada. If you are interested in it, I can send you the details. 800 fico on payor, and good protective equity. Thanks and talk soon.
[addsig]
NC,
Still interested in that commercial dal you have. Email some data so I can look at it.
What types of leads are you looking for?