Performing vs. Non-performing notes

non-performing-notesThere are two primary markets that you can target for real estate notes: Performing and Non-performing. Performing means all payments on the note are being made on time. These notes command a higher price because there is less risk to the investor. Non-performing means the opposite- they are in some stage of delinquency or foreclosure and they can be bought much cheaper for that reason (higher risk). Performing real estate notes have long been the “bread and butter” of the cash flow industry, but non-performing notes are huge now. In fact, they’ve now eclipsed REOs in terms of sheer volume. The inventory of delinquent loans is anywhere from 5 to 10 million at the moment as compared with about 430,000 REOs… at least an 11 to 1 ratio (delinquent notes to REOs)! This big bank selloff of distressed assets is being fueled by federal government mandate, requiring institutions to divest themselves of these massive portfolios of bad debt still on the books or risk hefty penalties. Investors who specialize in purchasing non-performing notes buy at such low prices (as low as 10-15 cents on the dollar in many cases) that they oftentimes have the ability and latitude to renegotiate with the delinquent payor to get the note “re-performing”, thereby skyrocketing their yield. They can then continue to hold or resell at substantial profits. Brokers who are able to deal in portfolios of non-performing notes (matching buyer and seller together) can pocket many thousands of dollars in a single transaction.

In the next Tip, I’ll continue discussing the markets you should be targeting.

This entry was posted in Main blog, Tips. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *