Unseasoned 2nd Mortgage
I've been offered a 2nd Mortgage that is unseasoned. An apartment complex (11 1/2/3 bd units) was purchased with a 80% Commericial loan and the seller took back 20% ($66k) in the form of a 5 year 8% Interest Only Note w/balloon of $66k at end of 5 years. The borrower has a credit score of 620 and should make enough from the property to pay what is owed.
I have two questions:
1. What is the note worth?
2. Is this a good investment?
Thanks in advance for your advice.
1) What the note is worth in this case mostly depends on what rate of return you want to make on your money. If, for example you wanted to make a 16% roi then the note is worth $.50 on the dollar. You might also want some discount for th lack of seasoning and the fact that its in second posision.
2) Depends to some extent on the answer to 1) IF you can buy the note at the right price then its a good investment.