I’m considering investing in non-performing auto notes and want to understand the potential risks and rewards. What factors should I consider before making this investment? Are there any specific indicators of value or strategies for managing these types of notes that I should be aware of?
Investing in non-performing auto notes can be risky but potentially rewarding if you play it right. First focus on assessing the underlying security of the notes - the vehicles themselves. Analyze the car market trends to determine how easy it might be to repossess and resell these vehicles, as this heavily impacts recovery rates. Calculate liquidation value vs. purchase cost. Risky buyers can implement a strategy called ‘re-ageing,’ which involves restructuring the payment terms to make them more affordable for the borrower. Make sure to vet borrowers thoroughly. High-quality data analysis of past performance on similar portfolios can indicate potential returns and help gauge risk levels. Finally, don’t overlook recovery costs and time—both can eat into profits if not managed carefully.