Investing In Non Performing Bank Notes Not many people are aware of the ever-growing market for buying and selling non-performing bank notes nationwide, particularly real estate notes. The players in this market used to be just banks buying and selling to each other. Then there was Freddie Mac and Fannie Mae and now the Federal Reserve. But a lot of these non-performing notes are being purchased by non-banks including Hedge Funds, Asset Management groups, investment groups and even individual investors. Before I go more into this market, this is not intended as investment advice. It’s only to make people aware of this market. If you are considering investing in these bank notes, I would recommend you consult an Investment Adviser and possibly a real estate attorney. So let’s talk about the buying and selling of bank notes, primarily non-performing. While most bank notes are sold in pools, you will see some larger individual notes for sale. These have usually been bought in a pool and then broken out to sell individually. Once due diligence is complete and a pool of non-performing notes is purchased, there are four primary strategies a buyer can apply. A buyer can also do a combination of these strategies. These four strategies are: 1. A buyer can flip the pool to a hungry buyer if he got a good deal on it and make some quick money. The buyer can also flip the notes individually or by groups. For example, not many buyers buy all types of notes nationwide so a seller can enhance the value of the entire pool by breaking them up by geography and/or property type or a combination of the two. 2. A buyer can modify as many of the notes as possible and convert these modified notes into performing notes for a much higher price after a bit of seasoning. The notes that a modification agreement couldn’t be worked out can be sold in a smaller pool to at least cover the buyer’s investment or maybe even make a small profit. 3. Non-performing notes buyers can foreclose on the properties and then resell them. This process can take a significant amount of time and money depending on the state the properties are located. 4. Finally, a non-performing bank notes buyer can foreclose and convert the properties to rentals. This is particularly attractive for pools of non- performing single-family notes due to the high demand for rental housing, strangely enough due to the very reason that created the non-performing notes in the first place. All of these strategies can be very profitable for the knowledgeable investor. A potential investor just needs to be fully aware of the time, money and legal issues involved in buying non-performing bank note pools.
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