12 Days Of Note Investing - Day #1 Balloon Note In Tampa FL

[Tracy Z. Rewey]

Let’s talk Note Investing! Most of us learn best through real deals. Recently inspired by @Martin Saenz  15 Days of Thank You posts, I’m kicking off December with 12 days of Note Deals. For the next few days I’ll share a deal where we can review, dissect and analyze note buying strategies.

Balloon Note In Tampa FL

This transaction involved the sale of a 1,440 square foot commercial warehouse building located in Tampa, Florida. It sold with the seller holding back a note secured by a first position mortgage.

• Sale Price $125,000
• Down Payment $50,000
• Original Balance $75,000
• Terms 7.0% interest payable in 96 monthly payments of $498.98
• All due and payable in 8 years.
• Balloon payment of approximately $67,617.32

After holding the note for three months, the seller decided to sell the performing note and use the funds for another investment. The note was purchased in its entirety for $67,021 (all 93 remaining payments including the balloon.)

Deal Analysis:

• UPB: $74,814.48
• Purchase Price $: $67,021
• Purchase Price %: 90% of UPB
• Yield To Investor: 8.95% based on balloon and 8.13% based on amortization (if the balloon is extended/removed).
• Discount: $7,793.48 (or 10%)
• LTV*: 60%
• ITV*: 54%

*Loan to Value (LTV) and Investment To Value (ITV) based on Sale Price

While some note deals are "home runs" this one is a "bread and butter" type of deal geared towards a private investor that wants the security of real estate without the hassles of landlording or rehabbing. 

Thoughts, questions, feedback?  Is it a deal you would do?

[Michael Rosenson]

Great idea @Tracy Z. Rewey !  I'm new to note investing so some "real deals" practice is exactly what I'm looking for.

Some initial questions I would have:

1) What business is the buyer in?  I think that's an important consideration that would have an impact on the purchase price because a riskier business venture = a less stable tenant = greater discount in price.

2) Speaking of the price, I'm curious about how it was determined. Was it just the seller's ask? Did the buyer counter? Is 90% of UPB more of an art or a science?

Looking forward to the next 11 posts!