Buying non-performing loans

[Josh Shapiro]

Im new at this... when i see a reseller’s tape and find a non performing loan that interests me, how do i determine a proper buying price?

[Don Paulsen]

Josh, what I usually do is work backward. I have a minimum return that I am looking for in any of my investments. So I plug the note details into my ROI calculator, and adjust the purchase price to find the price that will provide me with my minimum required return. That is the most I am willing to pay for the note. I usually bid a little lower than that in order to give me some negotiating room (and to possibly get an even better return).

One additional thing I do is ask the seller if they have pricing expectations. They won't always divulge that, but it's worth asking. If they tell me 65% of UPB, then I have a reference point to see if we're even in the same ballpark.