Have you been tempted by the high rates of return and potential large profit margins offered by investing in non-performing notes? The abundance of performing notes available along with the potential high yields are often the primary factors which leads many investors to graze in the pasture of non-performing notes. The economy, while getting better, is still trudging along and recent bank regulations require lenders to relieve themselves from certain non-performing assets. The lure? You can get a non-performing note at a deep, deep discount and banks and note-holders are more than happy to dump them and get them off their books.
To many investors this sounds like a beautiful scenario, a plentiful supply of inventory at rock bottom prices. It would be unfair to say that large profits and high yields can’t be made from investing in non-performing notes. However, we have found that when investors begin to dip their toes into the world of non-performing note investing, more often than not, they are met with a far less glamorous reality.
At the end of the day it all comes down to the risk/reward ratio and how much risk you are willing to take on. The majority of investors that we come in contact with are simply not interested using their hard earned capital, often allocated for retirement and generational trust fund purposes, to purchase this level of risk, regardless of the perceived “discount” on the initial purchase price they are receiving. We heard it best from an ex non-performing note investor when he said:
“The eight months that it took to get the note performing, the lost interest earning power of my money during the rehab nightmare, not to mention the energy and worry, cost me much more in the long run compared to the amount of money I thought I was saving buying at a deep discount.”
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