Bidding on Notes

“How much” to bid on notes is probably one of the most commonly asked questions, especially coming from newer note investors.

There are three main questions, in reference to buying nonperforming notes, which really come to mind:

1.) How much to pay for a note, or pool of notes?

2.) How long will it take?

3.) How much will I make?

Not to sound like an attorney, but the real answer to all of these questions is it depends. Realizing that it’s not the answer most folks want to hear, especially those thinking about jumping into the note business, or those contemplating the move into nonperforming notes, it really does depend on multiple factors. You also have to understand that there’s some trial and error involved, as well as a lot of common sense. But, that being said, I’ll try to break them down to explain a little further.

How Much to Pay?

Since the note business, in general, and not just bidding on notes, is a “learn by doing business,” it’s very hard in the beginning (I know I’ve been there), when you don’t have any data or a track record to go on. It’s also a business where you learn things by trial and error. The best advice here is to be sure to track your data and performance for future reference to assist you with future bids.

Due Diligence is a big factor as well. Of course you will look at generic criteria—depending on the asset class your bidding on (for example: commercial notes, first liens, or second liens)—such as fair market value, loan status, occupancy, etc. But as you improve your due diligence over time, your bidding will become more precise, and you will soon realize, like the more experienced note buyers, that your internal numbers are the …read more