Cash Flow Business Tip of the Week to Small Investors- Don’t try to deal directly with banks to buy non performing paper

non-performing-assetsI see an inordinate number of new brokers or investors trying to approach the large banks DIRECTLY when looking for non-performing loans for sale. That is the WRONG APPROACH and you are spinning your wheels if you try to go this route.

Reason being, large banks– the Chases, the BOAs, etc.–do NOT sell “one off” distressed assets to individuals; rather, they sell in BULK (i.e. 500 or more loans at a time) to private equity firms (or “Hedge funds”) with whom they have  ONGOING RELATIONSHIPS with. So, it is with THESE FIRMS that YOU need to build relationships if you are small.


After buying in bulk from the bank, these “hedge funds” then re-aggregate and RESELL a great many of the loans in these packages individually or in bulk– and they WILL SELL TO INDIVIDUAL INVESTORS like you and me– who do their homework and can move quickly and deliberately.

Therefore, it is with these HEDGE FUNDS that you, as an individual player, need to make your presence known and establish relationships. To be successful, you need know-how, demonstrated expertise, a high degree of credibility AND you need to deliver expeditious results. If you do not have the expertise yourself, you must ally yourself with people that do. (Hint: This is much easier than you think if you take the time to properly educate yourself and develop the right resources.)

You see, success in this arena (besides being able to source money which is readily available) is all about RELATIONSHIP-BUILDING. If you can position yourself as a “go-to” person that the asset manager calls upon time and time again, the rewards are massive. The opportunity to lock in huge profits by acquiring non or sub-performing assets for (in many cases) just pennies on the dollar is simply not out there for very long once the asset goes up for sale. These assets change hands quickly and ultimately end up in the hands of investors who will pay aggressive prices with an eye towards transforming these loans into  RE-PERFORMING assets (with extremely high yields) off into the future, which they will keep in their portfolios or resell again down the line.


If you are a new entrant into this exciting field, the easiest way to begin is by acting as a MIDDLEMAN (or woman). You need to know exactly how to approach the hedge fund managers and how to price the deal quickly, accurately and safely– and you should have the deal sold BEFORE you close on it, using the money of the end investor who is looking for high yielding assets that YOU are delivering to him!

THE KEY POINT THAT YOU NEED TO COME AWAY WITH IS: Understand the process by which distressed assets are sold. Don’t be an amateur and try to approach the banks directly, unless you are experienced and deep-pocketed. Instead, pin down and build relationships with the private equity firms and hedge fund managers, know how to price the deals and know where to source the money. Have the deal sold before you buy it.

Tune in to for Tim’s regular posts and columns on notes, investing, and personal wealth building. You can email him or call him at 312-922-1695.

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The non-performing note sector stormed out to huge gains across 2013 and hedge funds have swooped in to purchase entire inventories with the intent to resell either immedately as a non-performing note or within months as a re-performing note. This creates enormous opportunities for the small investor which you can learn about in The Insider Hedge Fund Formula.

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