Current Note Environment

[Leighann Davis]

Question regarding returns/scaling - What kind of return variability are you seeing with scale in the current environment? 

Lower amount to invest = less accessible, more picked through inventory. More $ to invest = greater potential to take down larger deals / tapes and less competition. For both performing and non-performing, are you seeing much difference in return from taking down a $70k note vs a $200k note, etc.? What about current return range for cherry picking singles vs overall avg of taking down a tape (understanding of course you're going to get some losers in the mix that will bring the overall avg down)?

I assume there's a general scale or tiers... the higher the investment requirement the less competition/greater potential return opportunity. I.e. Notes from $20-$70k will range x-x%. Notes from $70-250k could range x-x%. $1MM+ tapes we could see x-x%? I know that "it depends" but mostly looking to understand how that return could change as you increase the amount you go in with.

As a follow up question - The higher the $ the fewer the players. Where do you see the cutoff $$ for where the masses taper off? Genuinely curious how many players (on this platform otherwise) you're seeing and how common/uncommon it is for individuals to be playing in the $250k+ range, $500k+, $1MM+... 

A few years back when I was more involved I knew of one group of individuals that came together to take down $1MM+ tapes (obviously a lot of trust and legally binding agreements in play there...). How much are you seeing that happen these days? 

Thanks for the insight. 

[Chad U.]

There isn't really a scale in regards to returns wrt the size of the tape you're taking down.  However in most cases a seller will accept a bid from someone who is taking down the entire tape. This often means you need to have several  $1M's if not $10Ms.  Most investors at this scale are generally looking for overall yields in the low double digits. So often times it is better to buy from a seller who allows cherry picking to pull out the higher return loans.

On individual loan purchases, the return all depends on the discount you are getting that loan at. I've purchased one-offs that have generated 100%+, and tapes of 75+ and struggling to achieve single digit returns overall. Generally though the lower valued properties you can achieve higher returns, however the risk profile is much higher.