The Top Five Mistakes Note Investors Make When Bidding on Assets 

April 29, 2022

Lauren Wells



If you are a note investor, then you should be aware of what mistakes to avoid when bidding on assets. The note investing market is a competitive one and any mistake can cause a significant financial loss. So, in this post we will discuss five common note investment mistakes that investors make when spending time bidding on notes.  

1. Getting Seller Expectations 

When bidding on assets, it is important to thoroughly understand who the seller is and what their expectations are. You want to make sure their expectations line up with your business plan and structure, otherwise it will be a waste of both of your time. You want to get seller expectations before you even look at the tape, because there is no point in wasting your time if the expectations do not measure up. 

2. Bidding Off Pay-Off Versus UPB 

So often in the note investing industry I see people bidding off pay-off versus UPB and I can’t stress enough what a mistake that is. When it comes to a UPB, you will be able to see the pay history of the balance being paid off, pretty much guaranteeing profit. Pay-off on the other hand is a whole other animal because it required dealing with taxes and providing proof that you paid them, which may lead to chasing down other borrowers. In most instances, when you bid off pay-off, you’re going to be paying well above UPB. You will also potentially have to confirm all those costs which will require a lot of time and effort. 

3. Loans That Have Low Principal & Interest Payments but High UPB 

The main problem I see with loans that have low principal and interest payments and high UPB’s is the amount of time it takes to get your money back. These types of loans can typically take upwards of 10 years to get your money back, whereas I aim to get my money back in 3 to 5 years. When you make your bid, you want to make sure you are looking at the yield (how long it takes to get your money back) versus just looking at the UPB and bidding 75 or 80 cents on the dollar, because that can come back to bite you. 

4. Checking Taxes 

Checking taxes is crucial when bidding on assets because a lot of times the borrower or seller will put what the taxes are which leaves a lot of room for error. It is not uncommon for the taxes to be recorded wrong, which is why double checking this is so important. Sometimes this information can be found online, but in some instances, you will have to pick up the phone and make some phone calls. While this does take a little bit of effort, you will save yourself even more time and stress in the long run. 

5. Checking Liens 

Along with checking taxes, you also want to check on secondary liens, municipal liens, water sewer liens and any other lien that may affect the asset. Understanding the area and the structure is so important and can save you tons of money. It will also be extremely beneficial to find out if the power is on and if the water is turned on. The more information you can get, the better. 

Hope you continue to enjoy our content and check out our  podcast to learn more. 

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