How are profits, monthly cash flow, & the price of a Mortgage Note determined?
It’s a combination of 3 variables: 1) The Local Market Rent 2) The Note Value 3) The Amortization Period The local market rent determines the monthly cash flow, how much you can charge (e.g. $425). The potential occupant, like you and I, buys based on the monthly payment they can afford and agree to. The Note is usually written at 10% interest and amortized over 15 years. So for this example, a payment of $425, at 10%, amortized over 15 years, will mean an initial Note Face Value of approximately $40,000. So the end buyer will sign an agreement with the investor for $40,000 at $425/month for 15 years @ 10% interest, since the amount they pay is equal to or less than rent. You then collect the $425 mortgage payments and hold the note similar to the way a bank would.
