Investing in Unsecured Debt

5 Replies

Currently, US residential homeowner equity is high, and foreclosure numbers are low. 

At the same time, there's a rise in unsecured consumer debt such as debt consolidation loans, credit cards, and retail accounts. 

I'm wondering who has experience investing in non-performing unsecured consumer debt, and how it compares to NPL real estate loan investing.

Don't have a lot of experience with unsecured debt but, a few years ago, similar bad credit card debt was selling for .03-.05 on the dollar. It would take a lot of skip tracing and a lawyer in each locale who wouldn't charge you a fortune.

@Gary Headrick - from what I understand, the strategy for an investor not already in this field is to purchase a portfolio, then engage a collection firm licensed in the respective states. Very similar to hiring a loan servicer who also handles loss mitigation. 

Originally posted by @Marco Bario :

@Gary Headrick - from what I understand, the strategy for an investor not already in this field is to purchase a portfolio, then engage a collection firm licensed in the respective states. Very similar to hiring a loan servicer who also handles loss mitigation. 

Any debt older than 6 months has a 50% chance of being collected. It deteriorates from there. Since, people have ignored paying it what would you be doing differently to finally collect?

It's a common practice to keep selling the bad debt to the next guy who gets ignored as well. Also, there is a statute of limitations issue on a lot of the debt you would be buying and that means your only recourse is to continue sending letters to collect. 

 Seems like a pretty tough way to make a living when real estate is so much easier and more profitable.

Originally posted by Account Closed - from what I understand, the strategy for an investor not already in this field is to purchase a portfolio, then engage a collection firm licensed in the respective states. Very similar to hiring a loan servicer who also handles loss mitigation. 

Any debt older than 6 months has a 50% chance of being collected. It deteriorates from there. Since, people have ignored paying it what would you be doing differently to finally collect?

It's a common practice to keep selling the bad debt to the next guy who gets ignored as well. Also, there is a statute of limitations issue on a lot of the debt you would be buying and that means your only recourse is to continue sending letters to collect. 

 Seems like a pretty tough way to make a living when real estate is so much easier and more profitable.

I'm sure done correctly there's the potential to make money. Certainly much more speculative than RE secured debt. I know there are funds out there that raise money in this space. I admit to knowing very little about it. 

I have an old Colleague who has done this in a big way..  they bought CC debt for 2 to 5 cents on the dollar although these were already judgements.. not just the debt.

so they would stack all these judgements up.. then at 9 years start skip tracing them.. and figure out where they worked and were they banked  some how.. then hit them with garnishments just before the 10 years was up.. 

theory is after 8 to 10 years these debtors forget about it and you clean out their accounts and force them to do payment plans. 

seemed rather ruthless to me personally.