What are the Risk for Me to Sell My Note?
The investment-to-value ratio (ITV) is some of the most important information you can have about a note. It is indispensable when calculating risk. You hear a lot about the loan-to-value ratio (LTV), but not much about the ITV. Both are expressed as a percentage. The LTV is the balance of all outstanding loans against the property divided by the market value of the property. Both are important when decide to call a note broker and say sell my note.
The difference is that you use the price you are paying for the note to figure the ITV, not the face amount of the balance, since the money you have invested is what’s important. The higher the ITV, the riskier the investment. Most investors won’t touch a note over 90 percent LTV, and many won’t consider anything over 80 percent. Keep in mind one day you might consider calling a note broker and say the magic words sell my note and the costs of foreclosure, legal fees, curing the senior lien, property repair costs, holding and marketing the property, opportunity costs and other factors, plus the original cost of the note, could eat up that cushion and well exceed the total value of the property.
Conservative ITV guideline are no more than 75 percent on a single family house or an apartment building with four or fewer units; 65 percent on larger apartment buildings, commercial or industrial property; 50 percent on raw land or a single family house outside your local area; 40 percent on mature, developed lots in recreational areas. Mortgage note buyers will know what the risk are when decide to come knocking on their door to sell.