Buying my first note

[David Fernandez]

Hi!

I invested in RE for a few years now. Usually, most of my investments are buy property and rent it out for positive cash flow or sell them for profit. I am more used to analyzing short term investments rather than long term.

I got offered some notes to purchase and I started doing some research about investing in notes. I read lots of posts here at BP and I am incredibly thankful for all the advice you all share. Without your inspiration, I would not be considering this new investment route.

However, although I can analyze an "standard" real estate investment (what I've been doing until now) easily, I am having some issues analyzing a note investment. For example:

    - Property Value: $60,000

    - Original Balance: $42,000

    - Unpaid Principal Balance: $31,000

    - Remaining Term: 18 years

    - Rate: 5%

    - Monthly Payment: $227

    - Note Purchase Price: $25,000

I get an XIRR = 8.45%. However, I am not sure how to go from here.. How do I calculate ROI? I am also interested in knowing the NPV of the total amount I will be paid through all 18 years and subtract the purchase price to know what are my earnings; what interest rate do you use: current loan rate / gross yield / finance rates , etc.? Annualized of monthly?

Any other values and/or indexes that you look at?

Thanks a lot and I apologize for such rookie question...

[Roman M.]

Return of the investment is far more important then return on the investment. So don't forget to do due diligence on past payment history, asset condition, BPO on property value, drive by, etc. Remember that you might own this property if things go wrong. So ask yourself this question: will you buy this property for $25,000?

Do a google search on loan purchase due diligence and should be able to find a good list to go off.

There is also an ROI formula in excel that you can run to see what is your ROI. If you can't find it, click help in excel and it will come up.