If you were to buy a $20,000 mortgage note, 15-year term, 8% interest, how would you determine the price? Would you pay $20,000? Or, would you pay less? If your investment strategy was to have each invested dollar earn 13%, you couldn’t buy that note for “full price,” since you would only be earning 8% interest.
To get your 13% return or yield, you would have to pay less than the $20,000. This is the concept of discounting mortgage notes. Though you pay less for the note, the monthly payments won’t change. They’ll still be $191.13 each month. So, the question really is: If you’re receiving payments of $191.13 for 15 years, how much must you pay to get a 13% yield? Continue reading “Discounting a Mortgage Note”
If you know how to use a financial calculator, you have a very powerful tool for building profits in both discounted notes and real estate. As mentioned elsewhere, we like the Texas Instruments BA II+ or the Hewlett Packard 10b. Using either calculator, you can easily solve the problems below.
All sophisticated note and real estate investors should understand Wrap Around Loans. A “Wrap Around” or “All Inclusive Deed” or “All Inclusive Contract for Deed” wraps around another loan called the underlying loan. For example, on an investment home there may be a $50,000 underlying loan written at 10% interest. You could place a $20,000 second loan on the property with interest at 12%. Continue reading “Wrap Around Loans”
With a little ingenuity, you may be able to change the terms of an apparently bad note and turn it into a good note.
There are a number of circumstances where a real estate note can be modified to turn a bad situation into a good one. Here are some common modifications: Continue reading “Turning a Bad Real Estate Note into a Good Note”
Discounted Notes: A Case Study
Buying notes at a discount is becoming more popular, as real estate professionals discover additional ways to generate income, as well as deal with problem loans or properties. Continue reading “Using Your IRA to Buy Discounted Notes”