Author Topic: Opportunity to invest in a note  (Read 167 times)

jeromedawg

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Opportunity to invest in a note
« on: August 11, 2017, 03:50:50 PM »
Hey all,

A note investor I met at a recent meetup reached out to me asking if I would have any interest in a residential promissory note with 10% interest.

The numbers are as follows:

$50k promissory note at 10% interest for 12months (or more if desired)
Collateral is a 2bed/2br condo in Missouri worth $100k.

No other details currently unless I ask for them. I've primarily been interested in research buy and holds so haven't done a ton of research on notes but am potentially interested in that sort of investment.

Any initial thoughts on this opportunity?
My math might be wrong here but is it $5000 of interest on top of the $50k that would be paid back monthly? So $55k/12 = the monthly payments I'd get back after buying the $50k note?

I'm guessing there are other factors here to consider, particularly risks involved - anyone have input as far as that is concerned, or anything else to take into consideration for that matter?
« Last Edit: August 11, 2017, 03:56:53 PM by jeromedawg »

kellyincville

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Re: Opportunity to invest in a note
« Reply #1 on: August 11, 2017, 08:14:24 PM »
Any initial thoughts on this opportunity?
My math might be wrong here but is it $5000 of interest on top of the $50k that would be paid back monthly? So $55k/12 = the monthly payments I'd get back after buying the $50k note?

I'm guessing there are other factors here to consider, particularly risks involved - anyone have input as far as that is concerned, or anything else to take into consideration for that matter?

The payments will depend on the situation and terms of the note.  It may be interest only, it may be be 30yr amortization or it may be any other amortization period.  Interest only would be the most common that I have seen for notes of this kind.

Questions:
-Who has the extension option?  The person paying the note?  Is the extension automatic or does the note holder have a veto?
-Why was the note taken out?  ie: what reason does the purchaser have for paying 10% interest vs 4% from the bank?
-Is it owner occupied or an investment property?  If it is an investment property with tenants, what are the financials?  If it's owner occupied (red flag), why didn't they get a bank loan?
-What is the exit strategy of the property owner?
-Why is the note investor selling?  Did they just originate the note- taking the origination points (cream) off the top as their share and now are passing on the actual note to whomever will purchase?  If so, how confident are you that they properly vetted the property and the purchaser? 
-Where is the appraisal showing the property is worth 100k?  Or is that the estimated ARV when repairs are made (common)?  If it is future worth, what is the status of the renovations?  If it is a fix and flip, how many of these has the purchaser done in the last 12, 24, 36 months?
-Lastly, where is the property and is it something you would like to own if the purchaser cannot perform?  I don't know anything about the process of taking possession of a property in Missouri due to an unpaid notes.  States vary widely in the time frame, costs and general hassle.