Here’s a mortgage note listing that hit the market recently.
At first glance, this looks like a charming home in a nice neighborhood in Plymouth, NC. It’s a small town on the banks of the Albemarle Sound in eastern North Carolina – about an hour and twenty minutes away from the Outer Banks.
The mortgage balance is $57,000 and there are 173 payments remaining. That’s over 14 years. The interest rate is 9.5%, and the monthly P&I payment is $605 a month. That would become our cash flow if we made this investment.
The seller listed this note for $45,000. That’s the ask price… but it is negotiable.
The seller’s estimate suggests that this home is worth $125,000, which is more than twice the mortgage balance. That’s good. But we would do our own due diligence to verify the home’s value – because it would become our collateral if we were to invest in this mortgage.
What’s great about this asset class is that we have all the numbers up front. That makes it easy to analyze from an investment perspective.
Given the monthly payment of $605 and the remaining term of 173 months, we can quickly calculate that we will receive $104,665 in payments over the life of this note. That’s mailbox money coming to us from North Carolina.
Assuming we bought the note for the ask price of $45,000, our total profit on this investment would be $59,665. If we run the numbers, that’s a total return of 132.6% on our original investment. If we annualize that, it comes out to 9.2% a year. Not too shabby.
Given those numbers, we can very quickly compare this investment to other opportunities. Are we happy with a 9.2% annual return that will deliver $605 a month in extra income for us?
If so, we’ll need to do a little due diligence to verify the home’s value, check the payment history, and make sure all the documents check out. This isn’t overly complicated, nor is it terribly time-consuming. But it’s a critical part of risk management.
As long as everything checks out, we could be collecting that $605 in monthly income within 30 days or so. That’s how easy it is to create mailbox money.
We’re going to put everything together and look at how to use mortgage notes to craft a customized financial freedom plan on Monday. Until then, have a wonderful weekend!
-Joe Withrow
P.S. Don’t forget that we’re hosting a strategy session on mortgage note investing next Wednesday, October 8th. It will get started at 7:30 pm Eastern.
If you’re interested, you can get all the information right here.