What is a Note Discount?

This is usually the first question on everyone’s list. “Discount

is essentially the difference between how much is currently owed on the note versus how much the investor is willing to pay for it.

In addition, the fair market value of a note (also called “present value”) takes into consideration the Time Value of Money. Remember that although the seller is giving up a note for a fair market price and the investor will be getting a return; the note investor still must wait a considerable amount of time to get their principal back. 

Several things can determine the actual discount amount but the biggest factors are…

 

Value of Property

Payors Credit

Seasoning on Note 

Face Rate (Interest) on Note 

Amount Investor wants to earn on invested money

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