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Updated over 5 years ago on . Most recent reply

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105
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Joshua Durrin
  • Real Estate Broker
  • Alameda, CA
41
Votes |
105
Posts

Why sell a note for less than face value?

Joshua Durrin
  • Real Estate Broker
  • Alameda, CA
Posted
Just curious, it’s never made sense to me why someone who originated a loan for $100k for instance would sell it at a discount. If I spend $100k, then collect 12 payments (seasoning) and then sell it for $90k or so (something less than face value) a year later... I haven’t made money. So, other then being a “distressed” seller of a note and needing the cash right away, why would I sell a performing note for less than face value? The math doesn’t make sense. So what’s the flaw in my logic?

Most Popular Reply

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18,257
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15,674
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Chris Seveney
  • Investor
  • Virginia
15,674
Votes |
18,257
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Chris Seveney
  • Investor
  • Virginia
ModeratorReplied

Joshua Durrin its a numbers game. Let’s look at it another way. What if I bought a non performing note for $20,000 and got the borrower cash for keys for $2500. Say I was all in for $25,000 then I have the house under contract for $45,000 owner financed the home at 8% for 10 Years.

What gives you a higher return - selling the note to an investor at a yield of 10-12 % or continue collecting $.

What if I told you I could take the $ from the sale and reinvest it and possibly get 12-18%.

It’s the same reason why investors sell properties. They either need the $ or have an investment opportunity that will provide bigger returns than the deal they have now.

  • Chris Seveney
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7e investments
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