Investment Opportunities: Buying Single Notes or a Pool of Notes?

It's not uncommon for individuals who are new to the note investing industry to seek out single asset deals until they feel more comfortable with their ability to turn a profit on an investment. However, while single investment opportunities can be lucrative, there are many reasons to consider purchasing a pool of notes, even in the beginning stages of your career.

NoteRehabber Investment Opportunities: Buying Single Notes or a Pool of Notes?

You've heard the phrase "don't put all of your eggs in one basket" – it holds true when it comes to notes. When you can invest your money in a handful of properties instead of just one, your odds of having a compensating return increases.

Here are a few helpful tips on how to boost your profits in the note investing industry by considering when it's best to buy a single note and when it's time to go in on a whole pool.

Single Notes vs. Pool of Notes

Sure, investing in a single note allows you to focus on one challenge at a time, evaluate the property inside and out, and make sure that it's a perfect fit for you before jumping into the deal. However, if for any reason the property faces complications, you risk losing quite a bit of cash on just one of your investment opportunities.

Buying pools of notes may seem like an intimidating commitment, but by spreading your investment over a large list of investment opportunities you have more chances for ROI and you can mitigate your risk on any duds. Not all assets in a pool will be pristine, but you're likely to get a bigger discount when you invest in a pool instead of a single asset.

Plus, if you know how to read the numbers, you can evaluate a pool of notes just as thoroughly as you could a single asset.

If someone is selling a pool of notes and you're willing to buy it, you're taking the bad and the really bad off their hands, which will make them more inclined to sell to you.

You'll be solving the sellers' problems by being willing to take a load of multiple assets of different qualities off of their books, so they can spend their time originating and buying new loans.

Where to Find The Best Priced Pools

The best priced pools of notes can be found at distressed banks or from distressed individual investors that bought a performing note that then flopped into a non-performing note.

Note investors sometimes skip some of the required work to get the assets re-performing. It's common that they'll begin to see their returns start to dwindle, while facing the servicing fees and insurance costs, and they'll want to back out. So, tapping into your network of colleagues who also work with non-performing notes may be a great way to get your hands on a decently priced pool.

NoteRehabber Investment Opportunities: Buying Single Notes or a Pool of Notes?

You can also find good pricing by working with hedge funds. Some hedge funds will buy a large pool of notes, take the cream off the top, and sell the ones they don't want. Sometimes, a few really great assets are overlooked, which means you can scoop them up for a steal.

Other Ways of Buying Notes

You can also use a broker to buy your assets. If you do, make sure that the broker deals direct-to-seller to ensure that you don't overpay for service fees or, as it's known in the industry, "the cost of doing business." Typically you'll pay roughly a 3% commission when using a broker, which you can add into your ROI calculations.

There are also a variety of exchanges you can buy notes from, but beware: some exchanges foster a competitive auction environment where the highest bidder wins the asset. Exchanges like these work similarly to eBay, except you don't get to see the other bids.

In cases like that, you'll often be bidding with 50 other people, which will drive the cost of the asset up, up, up, and away from a larger ROI.

In exchanges, it's possible that you'll waste your time placing bids on pools of assets and, if you bid the highest, you'll likely overpay for the deal.

Use Your Network to Find Investment Opportunities

You can always meet distressed sellers or someone that knows a distressed seller at conferences and events. Find events where you can network with professionals who buy assets and turn them into performing notes. You never know who you'll meet at an event.

Want to hear how we've acquired our pools of notes and turned them into lucrative investments? Subscribe to our YouTube channel to follow our "Good Note, Bad Note" series about some of the notes we've acquired and how the deals evolve over time.

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