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Subject:  Re: TLCs as the RE market drops Date:  1/29/2007  5:00 PM
Author:  psuasskicker6 Number:  47 of 52

Also, when I buy and sell in bulk for larger investors (such as the above), I do the kind of analysis you mention. However, most NPV analyses would be at much higher rates than 6%.

I'm actually really curious how you would calculate this based on the risk of the investment. Maybe it's proprietary and you can't get into it, so no problem if that's the case. But it seems like it could be done one of two ways...
1) Expected rate of return, then factor risk into it. Very simplistically, I mean saying "this lien pays 15%, but we think it'll only return that 80% of the time, so we'd actually do an NPV calc at 12%".
2) Do the NPV stream based on expected ROR, then rip out the piece for the expected risk. Again, very simplistically "This lien pays 15%, the NPV at 15% is $X, the risk is 80% of the time, so $X * 80% is the expected NPV." I'd do some time bases on this, curving the likely risk by monthly period.

Curious if you can get into how you do these calcs.

But yes, your response did answer my initial question, thanks. A follow-up...I'd guess it takes either some significant capital or significant line of credit to be able to run this sort of business. Seems like it'd be a pretty tough market for a Joe Schmoe like me to get into...

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