To Sell or To Service — your Notes?
Well your budget says that you spend about 50% of your variable expenses on marketing & G&A to get a sale. Ok. So now you have a $21,000, seven year, timeshare note paying 12.49%. What do you really have? After you figure that out then you must ask, What do you really want? To Sell or to Service.
That note is worth $ 31,600 over the next seven years. Based on the above, we know it cost you $10,500 to get that note. So you make $21,100 on a $10,500 investment. Not bad. 200% return. Your shareholders or partners or bankers will be happy with those numbers. But you are not so sure. Yes, you make 200% but that’s over 7 years and the money comes back to you in $300-$400 monthly payments that you have to service the note. It’s a capital intensive game and if you make the wrong move or the economy turns against you…you could suffer. The Principals at Dos Mundos Developments, have over 100 years combined experience in making these difficult decisions and say, “Without decisions and proper planning we have seen faulty capital assumptions bring down many great developments.”
So you could sell that note the day it closes and get 90 cents on the dollar or $18,900 immediately on your $10,500. Your net gain is $8,400 on a $10,500 investment. That’s 80%….not bad but you are leaving 120 percent on the table.
Or you could “pledge” that note and get 100 cents on the dollar the day of closing and get to keep 90% of the monthly interest (only) payments as they come in and give recourse to the note “holder” in cases of default or late pays. Not a bad deal but requires third party administrators, legal stuff, guarantees and administration while you are are trying to market and sell more timeshare or fractional.
So, what’s the answer? Well, it depends on your capital structure and your risk tolerance. It’s that simple and that complicated. It kinda depends. Please call Chris directly
Generally, the priority among mortgages, trust deeds, and real estate contracts is determined by the date of recording, the first recorded instrument being the first in priority. In some situations, however, the parties may desire that a later recorded instrument have priority over an earlier recorded instrument. This is particularly common (or at least has been) in construction financing. A SUBORDINATION CLAUSE states that the instrument in which it is contained will be subordinate (junior) to a construction loan lien (mortgage or deed of trust) to be recorded later.
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