Note Investing Pricing Strategy

6 Replies

I hear a ton of discussion around this topic with regards to buying non-performing notes.Newer folks tend to think in terms of paying within an acceptable range given the marketplace.From day one, I’ve focused on the exit strategy for each note and developed expected returns given my due diligence process.Based on the expected returns when the note becomes cash flowing and the cash on cash returns I need to see as an investor, I let that determine what I am willing to pay for a non-performing note.I’d love to hear if anyone else has a different method.

My method is very similar. I have some macros in my ROI calculator that let me calculate a price based on a minimum return for a given exit scenario.

The minimum return I will accept for each scenario varies based on how likely I think that scenario is however. For example, if I think foreclosure is the most likely exit then I need to have a higher return for that scenario. If its very likely to reperform in some fashion or another, then I may be willing to accept a lower return for the foreclosure scenario since that less likely to happen. 

Great post Martin. You know how I work. I take most peoples worst exit strategy which is taking the house as an REO and work backwards. For me and my passive wealth strategy it works no matter what and can only get better should the borrower re-perform or anything else that comes through... Just best to work backwards. Thanks for sharing

Originally posted by @Dan Zitofsky :

Great post Martin. You know how I work. I take most peoples worst exit strategy which is taking the house as an REO and work backwards. For me and my passive wealth strategy it works no matter what and can only get better should the borrower re-perform or anything else that comes through... Just best to work backwards. Thanks for sharing

 Thanks Dan.  That makes perfect sense.  I'd recommend upgrading your account so you contact information hits the bottom of your posts.  It will help people connect with you better.

Bidding on notes is not taking a UPB or FMV and multiply it by a percentage like many believe.

I agree with what Martin and dan preach which is to die your due diligence on the property, the market in that area and understand the laws. A note in cook county vs. a note in Dallas Texas that is the same will have extremely different values. 

Originally posted by @Chris Seveney :

Bidding on notes is not taking a UPB or FMV and multiply it by a percentage like many believe.

I agree with what Martin and dan preach which is to die your due diligence on the property, the market in that area and understand the laws. A note in cook county vs. a note in Dallas Texas that is the same will have extremely different values. 

 Good point on territory.  When I bid on larger take downs, I use a pricing matrix and downgrade/upgrade notes within the matrix based on location (and some other factors).  Good point, Chris.