Selling Notes

**I Fall In** · #1 04-01-2012, 05:44 PM

Anyone ever dealt with the people who buy notes and pay you a lump sum? Need to know how this works. What percentage of the note do they usually offer? Any other info would be appreciated.
Thanks
Freddie

**Danny O** · #2 04-01-2012, 07:58 PM

Assuming the collateral is sufficient, "hard-money lenders" have a set rate of return (such as 18%). If the note has a fixed rate of 12%, then they'll buy the note at a discount to achieve 18% over the remaining life of the note. In other words, the discount is dependent on the fixed rate on the underlying note. It's all mathematical, but that is the gist of it.

**Haute Pursuit** · #3 04-03-2012, 04:45 PM

Typically it will be between 20-30% of present value if it is a secured note. Unsecured it will be way more than that. There are alot of factors that can make the cost less or more.

**I Fall In** · #4 04-03-2012, 05:48 PM

Quote:

Originally Posted by Haute Pursuit

Typically it will be between 20-30% of present value if it is a secured note. Unsecured it will be way more than that. There are alot of factors that can make the cost less or more.

Are you saying they would pay 12,000-18,000 for a $60,000 note?

**Danny O** · #5 04-03-2012, 07:27 PM

The details of your scenario are lacking, but I'm assuming you are referring to fully secured, fully amortizing, real estate note, or something similar with good collateral that isn't going to disappear overnight.

Assuming no balloon payment, then here is what you do. Take the number of periods left (N), the monthly payment amount on the existing note (pmt), insert $0 for future value (FV), 1.5% [18%/12 months] for monthly interest rate (i), and solve for the PV. You can calculate it on Excel.

The loan discount is based on the rate. If the rate is already 18% fixed, then you could probably get the full 60,000. If the interest rate on the note is 7% fixed, then they will want a hefty discount. They are still going to collect the 7% from the underlying obligor, but they need to get 11% from you (via discounting the loan) to make their required rate of return.

**Haute Pursuit** · #6 04-04-2012, 10:41 AM

Quote:

Originally Posted by I Fall In

Are you saying they would pay 12,000-18,000 for a $60,000 note?

No, that would be the approximate discount on a note at current interest rates. The longer the term and the higher the interest rate on the note, the lower the discount rate will be.