Sellers and investors often ask what ITV (Investment to Value) they should target when buying or selling a private real estate note.
You may have seen that some note investors claim they will go 85, 90, even 95 percent ITV. Frankly, I have yet to really meet them when it comes down to funding a deal in the current market.
As a refresher, the ITV represents how much is invested or paid for the note in comparison to the property value. It is a different ratio then the buyer’s LTV (Loan to Value) or the discount percentage.
The lower an ITV the safer the investment, but you still want to stay competitive. Personally, I don’t like much over 80% ITV and prefer to be around 70% or lower depending on credit. You want some room in the event of a foreclosure or a down market (either of those sound familiar around now?).
A word of caution; don’t let a higher return push you above your ITV comfort zone. If you decide you want a 75% ITV and 10% yield then don’t be tempted with an 85% ITV and 13% yield. Someone once told me yield is irrelevant if you don’t get paid – they were right.
For more information on buying or selling notes for profit please visit the bookstore for Personal Profit Series: Notes – Your Complete Money Making System to Buying, Referring, Creating and Holding Real Estate Notes!
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