Non-performing note buy

[Josh Shapiro]

If i like a sellers non-performing note and want to buy it, how do you determine the right purchase price?

[Randy Thomason]

What yield do you want to earn?  You run a financial calculation to determine your desired yield(rate of return)  and that will give you a present value of the cash flow of the payments.  

Info you need for the calculation: 

number of months on the mortgage, Int Rate, original balance.  ( verify there is no balloon payment as that needs to be run differently).  Run the math and verify the payments are correct to what they are paying.  The run it for the current balance and the yield your want as the interest rate.  That will tell you the payment you want to pay to purchase it. 

You are becoming the bank so you need to analyze it like you are a banker. ( to a degree) 

Things to look for to determine value also:

1- what was the original sale price

2- was there an appraisal done

3-Was the price fair value or inflated for the owner financing 

4- Interest rate

5- term 

6- is there a balloon

7 - current value of asset

8- are taxes current

9-flood zone?

10- lien search

11-how much down payment did the buyer make, if any? No DP or small DP = higher risk

12- what is the CLTV currently. ( combined loan to value) as in do they have a second on the property

13-credit score of borrower (the lender has the right to do updated credit checks during the life of the loan) 

14-employment status of the borrower currently.

15- a provable payment history ( proof of deposits)

If you haven't done these checks then you aren't doing your due diligence.

I'm not saying all the above have to be done or great, but you need to know what you are buying.  I buy notes and usually they are missing many of the above items but I know what they are and can determine a risk factor.  The higher the risk, the higher my desired yield.

Good luck and happy hunting!