I Found A Note -- I Need Help Pricing
This was my very first time calling a seller up to find out information about their Note. This is what I found. I'm having a hard time evaluating this information to come up with an offer. Please assist. Thank You.
Type of Property: Restaurant
Owner Occupied:Yes
Property Value: sold for 479K in Sept. of 2000
1st Loan Amount: 479K (this is the only mortgage on the Restaurant)
Monthly Payments:3501.00
Down Payment Amount: ?
Balance Amount:$395K
Interest Rate:10%
Original Length:30 year schedule
Number of Payments Made: 40
Number of Payments Remaining:
What Day of the Months are Payments Due: ?
Are Payment on Time: Yes, Always (and has documentation to prove it)
Balloon Payment: 385K
Balloon Payment Due Date:in 5th Year (owner may extend this)
Are there Any Clause: Seller said that the owner has given a personal guarantee on this loan
Seller’s Motivation: Retired. Divorced. Children are grown. Girlfriend lives in abroad, wants to move to where she is.
When He Needs to Close: No immediate urgency
I have a question. Are you looking to buy the note or the restaurant? There is a difference. By reading your post, it looks as if you are buying the business and not just the note.
John
One confusion point. How can the owner(assuming you mean of the restaurant) extend the balloon? That would take another note.
It looks as though you have done some of your homework on this. You need to check that there are no liens against the property that you don't know about and if you get to the point of serious negotiations you should check out what assets are behind the borrower's guarantee. You also need a plan if the restaurant fails.
Keep in mind also that the market for such a note may be limited so you should not worry to much about trying to "estimate the value" of the note. The value will be what you and the note seller agree upon.
I hope this helps.
Regards,
Ed
One item you did not include is what the note seller is asking for the note. What you might do is to get out a financial calculator ( or Excel spreadsheet) and find out what you should offer to get the yield that you want and then make an offer at (or slightly below) that amount to begin negotiations.
An addendum. I assumed that the note holder was considering an extension of the payoff date. You want to be the one making that decision. If the note contains a clause that allows a payoff extension that the borrower can exercise (possibly in exchange for a higher payment) you also need to consider this in your negotiations.
there maybe a right to extend the balloon payment date for a certain consideration such as say 1-2% of the balance owed.
Is this a note on real estate occupied by a restaurant? Or is this a note on a restaurant business the note holder sold?
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