IS IT BETTER TO INVEST IN PERFORMING OR NON-PERFORMING MORTGAGES?

From an investment standpoint, would it be improved to deposit in behaving or non-performing mortgages? I’m meditative about removing in to the commercial operation as well as am wondering that side to be on. In my opinion, investors would feel the investment is “safer” with the behaving debt as the borrowers have been consistently profitable upon the debt as well as the really subsequent month payments should be expected. However, with non-performing mortgages the risks have been larger (foreclosures, REOs, etc) though the distinction intensity is MUCH higher. So, would it be improved to deposit in behaving or non behaving mortgages? Thanks for any responses.

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{ 2 comments }

cactusgene May 12, 2011 at 11:35 pm

Yes, a non-performing loan will bring you a much higher return, but only IF you can buy this loan at a decent discount AND IF the value of the underlying real estate is substantially higher than the balance of the loan. You should also check with a title company to verify there are no major other liens recorded against the property ahead of your mortgage’s position.

In a non-performing loan you almost certainly must foreclose to get your money back. After the foreclosure you will probably have to rehabilitate the property to make it suitable for sale, since the prior owner had no interest in curing any of the deferred maintenance. After foreclosure you will also earn no interest on your property until it is sold.

So it it still worth it? Yes, but only if you really do your homework first. Been there, done that.

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