Performing Note

The Asset

San Antonio, TX

Market Value: $125,000

Mortgage Balance: $103,400

Payment: $878

Interest Rate: 10%

Term: 30 years

Remaining Term: 29 years

 

Exit Strategy

The note was purchased as an asset for our portfolio for cash flow. However, shortly after acquiring the note, an investor approached us looking for a note with cash flow for her retirement with an average return. The strategy was then to sell 120 payments, or 10 years of the note to the investor, for a Return on Investment (ROI) of 10 percent. After the 120th payment is made, the $878 monthly payment will come back to us for the remaining 228 months or 19 years. Again, 10 years of payments + 19 years on the back end equals the remaining term of the loan of 29 years.

 

The Final Numbers for Investor                  

Paid for 10 Years: $70,000

Payment: $878

Term: 10 Years

Rate of Return: 10.0%

Total Cash Flow: $105,360

 

Implementation of the Exit Strategy

Also, it is worth mentioning that the investor paid $70,000 for 10 years of payments, while we paid $70,000 for the entire note. This is possible because we purchased the $100,000 at a discount and paid $70,000; therefore, our internal ROI was 14.8 percent. It was possible for us to offer the note at the note rate of 10 percent for the investor’s retirement account.

 

Final Numbers for Us

Paid for Entire Note: $70,000

Payment: $878 

Term: 19 Years

Rate of Return: 14.8%

Total Cash Flow: $200,184

Remarks

This was an investment where the investor participated in a partial purchase of a performing note that pays the “coupon” rate on the mortgage for ten years. It allowed the investor to receive payments of $878 per month. For us, we gave up 10 years of payments so our investor could profit right away, but on the backend, we will receive the remaining term of the mortgage while making certain the investor gets paid first.