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8 Ways to Profit From Non-Performing Loan Notes

Written By Devi Kristanti on Thursday, July 17, 2014 | 4:59 AM

Buying non-performing loan notes has become one of the most popular forms of investment in the last couple of years but there is more than one way to profit from them.

1. Keep Them for Passive Income

Some 'sub-performing' or non-performing loans may still be great long term passive income investments as is, providing you have a little patience with payment collection and the financial ability to foreclose if necessary.

2. Season & Resell

Just because a note has a few slow pays doesn't mean it isn't going to perform. Take a good look at the file, borrower, property and circumstances. Perhaps the borrower's circumstances are improving and with some seasoning the value of the note can be increased and then resold.

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3. Flip the Note

Just as other investors have made a killing from flipping houses, if you have a great source for acquiring non-performing loan notes and can pick them up at huge discounts from highly motivated note holders and lenders you may be able to wholesale them quickly and in volume.

4. Foreclosure & Flip

Those investing in non-performing mortgage loans need to anticipate that at some point foreclosure may be the only option. The good news is that home values are rising quickly in many areas and foreclosures are flowing freely again so with well-chosen notes you could well stand to win significant profits from foreclosing and flipping properties.

5. Foreclose & Convert to Rentals

If income is your main goal then non-performing borrowers can be foreclosed on and evicted. The property can then be converted to being a rental and continue to provide regular passive income while investors get the added benefit of growing equity and capital appreciation.

6. Deed-in-Lieu

Borrowers who just can't keep up are far better off executing a deed-in-lieu of foreclosure, to give you the deed to the property, saving the investor the expense and the borrower the worst consequences of a foreclosure. As an incentive and if you wish to utilize the property as a rental a leaseback could be offered to the current owner.

7. Loan Modification

Many currently non-performing loans are the result of adjustable rate mortgages with escalating payments or involve borrowers who experienced a one-time hardship. By modifying these notes borrowers can get back on track, back interest can be recouped and rates can be scheduled to be increased in the future when finances are in better shape.

8. Short Sales

Another way to quickly flip these notes and cash out is to acquire non-performing loan notes, approve short sales on the properties and get them cashed out.

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