How do we determine the value of a real estate note?

There are many factors we consider when determining what we can pay for a real estate note or mortgage. The three main areas we analyze are:

The real estate securing the note:

• Type of Property
• Location of property
• The market value and marketability of property

The borrower:

• Borrowers payment history on the note
• Borrowers credit

The note and deed of trust, contract or mortgage:

• Interest rate
• Length of time remaining on contract
• Payment amount
• Loan to value (LTV)- Total of all encumbrances in relation to the value of the property.
• Position of note (1st,2nd, 3rd?)

In making any investment wherein the interest on the investment is to be repaid over a long period of time, an investor must factor in the “Time Value of Money”. Most of us know about inflation and the fact that a dollar today will not buy the same amount of goods in the future ( look at the cost of milk or bread back in the 50’s or 60’s as compared to today). Therefore the longer the term of the contract, the less the future payments are worth. In addition to allowing for the time value of money, other risk factors, such as possibility of default must be factored into the calculation.

In order to give our clients the best and most accurate pricing we use a sophisticated computer program to calculate our purchase prices for mortgages.