Posted by Rich[FL] on March 30, 2004 at 13:38:20:
In Reply to: Are interest rate movements really irrelevant to private notes? posted by David on March 25, 2004 at 08:55:33:
David, I'm sorry I can't give you an "ivory tower" answer to your question, however, let me offer my view.
If you're borrowing money to finance your note buying (where are you getting your money? I may be interested also!), it should be rather easy to figure out the impact of increased borrowing costs. If you're buying notes at an 18% yield, and you're paying 9% on the financing, you're making 9% return on the note, but it's an infinite return on your investment since you have none of your money at risk. If you buy notes at 18% yield and you're paying 15% for the financing, you're making 3% return on the note, but the return on your investment is still infinite.
The question you have to ask yourself is: what is the spread between yield and finance cost where it would no longer be worth your time and effort to manage the note and take steps to enforce collection if the note defaults? We can't answer that one for you. If it was me and I could get 3% spread on a note I spent a couple of hours buying with none of my own money, I'd consider doing that all day long! (as long as my money supply lasted anyway!)
- "Infinite return" Kurt Schultz 18:03:56 4/17/2004 (0)
Post a Followup