Why I love re-performering notes

     Before I start, it’s probably a good idea to define what a reperformer is, in my world it’s usually a delinquent 2nd mortgage that started to pay or perform again but it’s also a note and mortgage that hasn’t been paying for a year or 12 months yet.  First of all, I try to grab one or two a month and sock them away.  I’m usually not too concerned about where they are, what type of equity it has, etc.  I’m more focused on just building my portfolio.  I don’t over think it.

     So, what do I really like about them?  Since my financial planning days, I’ve tried all kinds of investments: Real Estate, annuities, options, but none have come close to second mortgage notes.  With a servicer in place (www.TrustFCI.com), notes are much easier to manage than to deal with tenants, contractors, and townships.  Just place the note in servicing and all I have to do is periodically check my senior lien.  Even when trading options it required much more focus and daily maintenance; not to mention there’s collateral attached to a lien.  But what I like most is how profitable they can be.  Not only am I making 15-30% on payments, I’m also banking on cashing in on some potential “kickers” with my notes.  The kicker is the difference between the current payoff and the discounted purchase price.

     Of course I don’t have that crystal ball to know exactly when that will happen, but I do know statistically it will someday.  The average life span of a mortgage is 5 to 7 years in the U.S. for all mortgages.  So the lesson here is that I just don’t worry about it, I just keep acquiring them.  How many re-performers are in your portfolio?