Posted by David Butler on May 10, 2009 at 10:59:51:
In Reply to: Yield on farm land note? posted by Levi on May 06, 2009 at 07:27:39:
Hello Levi,
As with all notes, there are a number of factors that go into investor pricing for a land note, including Class III land notes (lowest value type collateral of vacant land). Generally, yields I have seen over the years with Class three security run from 20% to 30% or more, depending on location, down payment made at time note was created, Payor credit, land use for area, original LTV, and balloon payments, if any - that do not represent more than 50% of property value.
Generally, investors for these types of notes prefer to restrict their invested funds exposure to no more than 50% of the note balance, unless the note is well seasoned, and the balance remaining due already is less than 50% of the land value.
In today's market, be aware that private note buyers are facing many of the same challenges as institutional lenders in the capital markets - without benefit of government bailout protection. So deals have "sizzle" much more than in the prior decade up through 2005.
Whenever possible, you will generally be much better served by trying to find an investor who will do a partial purchase on the note, leaving much of the back-end residual value in place for the note holder.
For example, if you have $100,000 remaining on the note, and 225 payments left to go... if $45,000 cash will solve your immediate needs, you will usually be much better off just selling the investor, say... the next 125 payments for $45,000, rather than selling the whole note, which might only get you $50k or $60k. This is particularly so the higher the interest rate on the note. BTW... in the current market, you want to generally structure your Class III lan note to carry at least a 10% or higher, interest rate whenever possible. Just a function of the collateral being viewed as riskier than other types of real estate.
Hope that helps, and best of success out there at Green Acres!
Saving Our Economy... One Property At A Time!
David P. Butler
National Equity Solution
- Re: Class III Land Notes... Green Acres! Levi 06:36:30 05/12/09 (0)