HAPPY ENDINGS: THE UNADVERTISED BONUS OF INVESTING IN DISCOUNTED NOTES DAWN RICKABAUGH
When you make a private loan, the returns can be
•
Note investor’s desired yield: 12%
very solid, as you saw above, but there is usually
•
Investor will buy the note for: $56,861.20 (72%
no surprise upside (unless you end up foreclosing
of the balance)
and owning a property you want).
•
With private, discounted, seller carry back notes,
If the note investor receives $587.01 for the next
you can buy at yields that match those available
29 years, then they will have made 12% on their
through private lending (8% - 15%), but be
money. But what happens if the property is sold or
happily
refinanced at year 7, which is statistically likely?
increases
surprised
when
that
yield
greatly
Discount: 28%
with early payoff, or a creative
Here’s an example…
•
Note balance at year 7: $73,982.16
•
modification that the Payor happily agrees to.
Note investor receives: $587.01 for 6 years
•
Note investor receives a balloon payment in 6
years: $73,982.16
Transaction where property was sold with owner
•
Yield to investor: 15.46%
financing:
And, as with private lending, if you’ve done a good
•
Sales price: $100,000
job of underwriting the borrower and the collateral,
•
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