In addition to my commercial bridge loans business I also assist investors in finding investment opportunities in non-performing notes, both commercial and residential. While I feel we are on the downward side of this investment’s curve, there are still opportunities, just harder to find. I still get calls from investors wanting to get in this market and since many are seeking to learn this business so I thought as part of my commercial loan website, I would give prospective investors some of the insights I have garnered since entering this business three years ago. And while I will focus this article on the commercial notes side of this business, much of what I say fits the residential side as well. Also, this article is not meant to explain the buying process but rather to explain various strategies one could apply to this business. So, following are three strategies to investing in commercial non-performing bank notes as well as non-bank commercial NPNs.
- Option 1 – Purchasing commercial NPNs and flipping it for profit. While this is pretty self-explanatory, the keys to success here is a) Buying right and b) Already having a ready buyer. The second part is particularly important if you are leveraging your purchases with a short term bridge loan.
- Option 2 – Buying the NPN with the intention of acquiring the property via foreclosure, Deed in Lieu, etc. depending on the state. The key to success here is either buying in a state where foreclosure doesn’t take too long, minimizing the cost and risk or being well versed in the foreclosure process and building this into your pricing. You also need to have a solid exit strategy for when you take control of the property, such as selling or renting the property.
- Option 3 – Buying the bank note with the intention of modifying the terms so as to get it performing again. This strategy should have a backup as you never know whether the borrower will cooperate not to mention what terms they would accept. You obviously can revert to the above option 1 or 2.
So there you have it, various strategies for investing in commercial non-performing notes as a business. I hope this was informative. Lastly, as I mentioned earlier, you can apply these same strategies to residential bank notes. You might consider learning this business through residential NPNs since you can get in and learn the game for much less investment and risk.