Non-Performing Notes As An Investment
This non performing notes information is not intended as investment advice. You should seek such advice from a licensed professional when considering this alternative investment strategy. The purpose of this piece is simply education about a very interesting and possibly lucrative business that a lot of people just don’t know about. First of all buying and selling non-performing bank notes (usually in pools) is not just for the big boys although there are some very big players in the non-performing notes arena. Having said that, there are plenty of small players that are doing quite well in this business. Secondly, due to either a need to restructure their portfolio or from pressure from regulators many banks are shedding these non-performing notes on a fairly regular basis. This is particularly true of banks that were the most aggressive during the heyday of the mortgage business. Now, let’s talk a little bit about the different approaches to the non-performing notes business. I’m primarily talking about non-performing notes pools, although much of this could apply to single bank notes. These also apply pretty much the same to commercial notes and residential properties notes. These are not in any particular order. 1. Buying non-performing notes at distressed prices and flipping them for a quick profit. The pool can be sold as a whole or repackaged into smaller pools, even individuals. 2. Buying pools of notes and restructuring them with the borrowers and selling or foreclosing those that can’t be worked out. This approach can yield some nice steady income far above many other investments today. 3. Buying non-performing bank notes for the properties. This is particularly attractive on income producing commercial properties, although depending on the state the foreclosure process can be expensive and quite lengthy. This needs to be taken into account in the offering price. 4. Buying pools of non-performing notes on single family residences and rehabilitating them for rentals. Since many of the properties may be vacant, this is less of a hassle than you might think. This approach dove tails nicely with the growing demand for rental housing. I know of numerous investors that keep renovation crews very busy refurbishing houses to either convert to rental properties or just to flip. Some also offer seller financing for above market interest rates. Lastly, let’s talk a bit about pricing. While pricing for non-performing note pools can vary quite a bit due to all the variables, here are some general observations. Non-performing note pools on single-family residences go for quite a bit lower than commercial notes. I see pricing in the range of as little as eight percent of the unpaid balance to 25% or higher. Many of these notes have not been paid on in 2 to 4 years. Commercial non-performing notes generally go for between 30 percent and 80 percent. The reason for the huge spread is some properties such as industrial are very difficult to either sell or find a new tenant whereas real estate notes on apartments are usually at the top of the pricing range. So there you have it, a brief overview of the non performing bank notes business. I hope you found this information both interesting and informative.