Author Topic: Selling performing notes  (Read 3736 times)

mness

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Selling performing notes
« on: June 04, 2013, 10:32:50 PM »
Common wisdom is to immediately list notes for sale on the secondary market when they go late. However, is there wisdom in selling performing notes?

Most notes that go delinquent do so only after a number of months. If you could get the value of accrued interest + principal + 1% markup for performing, why not sell performing notes after 6 months and then repurchase new notes?

core

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Re: Selling performing notes
« Reply #1 on: June 04, 2013, 10:51:31 PM »
Then by the same logic, if you ever find yourself in some debt, you should always move your debt to a different lender every 6 months which should minimize the chances of you getting behind regardless of your income situation.  Neat trick.

This seems similar to gambler's fallacy.

GS

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Re: Selling performing notes
« Reply #2 on: June 04, 2013, 11:27:26 PM »
Keep in mind there is a 1% fee for selling on FolioFN.  I'm selling my portfolio of notes from my taxable account to close out that account.  I started with a 3.5 percent markup, on Sunday, and so far have sold 3 of my ~50 notes.   I figure Ill lower my mark up a little each month until they are all sold.  When my Roth gets funded I might buy some of my own notes that go unsold and eat the fee.

One of the main problems with selling performing notes is that it will probably take you a couple of weeks, on average, before the money is reinvested and earning again, so your return takes a hit. 

Rather than selling all your performing notes, I'd try a strategy of watching the FICO score for a big drop or general downtrend to pick the ones to sell preemptively

Show Me The $

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Re: Selling performing notes
« Reply #3 on: June 05, 2013, 05:21:20 AM »
As I have seen on this board..many notes sell at much better premiums than 3% so YES you can sell performing notes, they seem to like NON $25 notes more than the $25 notes.....I have sold a bunch at a premium and put money right back to work.

Joe6Luck

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Selling performing notes
« Reply #4 on: June 08, 2013, 04:11:49 AM »
Not sure if it is a general situation: I sold quite a few notes when switching from a non-IRA account to an IRA account; 36-mon notes sold much faster than 60-mon notes; notes with several month history sold faster than newly issued notes.
« Last Edit: June 08, 2013, 04:14:57 AM by Joe6Luck »

core

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Re: Selling performing notes
« Reply #5 on: June 08, 2013, 06:23:16 AM »
Most notes that go delinquent do so only after a number of months.
(...)
why not sell performing notes after 6 months and then repurchase new notes?

Meaning you break even on the original note, par-wise.  (I am assuming you were intentionally meaning to do this.)  It is this exact belief that triggered this (non-)argument in another thread.  So far, no one has stepped up and defended this theory/practice beyond passing comments elsewhere.

mness

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Re: Selling performing notes
« Reply #6 on: June 10, 2013, 07:57:26 PM »
Most notes that go delinquent do so only after a number of months.
(...)
why not sell performing notes after 6 months and then repurchase new notes?

Meaning you break even on the original note, par-wise.  (I am assuming you were intentionally meaning to do this.)  It is this exact belief that triggered this (non-)argument in another thread.  So far, no one has stepped up and defended this theory/practice beyond passing comments elsewhere.

Thank you for the replies, everyone. Core, would you mind explaining what you mean re: breaking even? I am admittedly new at this, so I'm sure it's going over my head, but in my scenario you would collect interest + principal for the first six months, and then sell the note for face value of principal remaining plus one point to cover the FolioFN fee. Why would this be considered breaking even?

EDIT: I just re-read this and think we're on the same page: I would be recovering par value for the note, but would have also collected six months interest.
« Last Edit: June 10, 2013, 07:59:13 PM by mness »