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How to Become a Passive Debt Investor 

Passive Debt Investor 

Almost every successful person talks about the importance of investing. According to The Economic Times, passive debt investors are gaining popularity because now is the right time for them. Due to factors ranging from the number of debt buyers and regulations to the availability of debt and funds, the debt-selling industry tends to be cyclical.

Currently, there are fewer buyers, and competition has decreased, but at the same time, the number of new firms collecting technologies for more efficient bill service has increased. Therefore, if you want to succeed in this business, read our article with all the necessary steps and important information and become a passive debt investor right now.

Who Is a Debt Investor?

A debt investor doesn’t have to be an individual or a group, but it can also be any company that buys existing/non-performing loans or receivables, that is, any form of loan, in order to receive, over a period of time, an amount that will exceed the purchase price. This kind of loan can be obtained in small companies or in a bank with outstanding receivables.

It is also crucial to pay attention to the quality of loans. They can range from well-performing (large and secured) loans, such as a mortgage, to non-performing (written off and unsecured). Some debt buyers own licensed debt collection agencies themselves, but there are also those who often do not collect on their own purchased accounts but outsource the risk to a licensed agency.

Tips to Be Aware Of as a Beginner 

Before starting, it is better to be prepared so that you can be sure of what you are doing when investing. Here are some steps that will help you understand what to look for and what to know if you want to become a passive debt investor yourself. 

Research the Types of Debts 

Before you buy debt, you should study the market. Perhaps you already have experience with a particular type of debt, or maybe you have contact with a group that wants to sell debt. If you don’t have one or the other, then you should do it. Jeffery Hartman, a debt buyer and  leading strategy consultant, also recommends looking for other debt buyers who can guide you on current market conditions, prices, and values.

If a person or a company lends money in return, they often have the opportunity to sell their debt. If they are interested in this, then the two of you should agree on a price that depends on the market, the time and likelihood of collection, the age and type of debt, as well as how long it has been active, and so on.

Reach Out to Third-party Collection Agencies 

Before buying debt, it is better to contact a third-party collection agency to clarify the following issues: what asset classes they specialize in, how much is charged to the account, whether there is liability, error, and omission insurance, what liquidation rates of recent portfolios are, and whether there are contingencies and industry references. The collection agency should have an answer to all this. What’s more, they should guide you on what they can get based on the type of debt and its age.

Check the Debt Portfolio 

The next step is the conclusion of a non-disclosure agreement with the seller, after which the lender/seller is obliged to provide you with a disguised copy of the portfolio. It should not contain information by which it would be possible to identify the debtor, for example, the name.

What, then, should be in the disguised briefcase? Pay attention to the presence of these seven points:

  • The original dates of the loan;
  • Initial loan amount;
  • Total average account balance;
  • Date of last payment;
  • Date of the last write-off;
  • States;
  • Zip codes.

In addition, it is recommended to ask the seller for a copy of the titles along with a sample carrier of the document signed by the debtor. The creditor (seller) themself must fill out a special questionnaire, which describes the total maturity of debts after they are received for collection.

You should also be curious about how many agencies the seller has outsourced the portfolio to, for how long, what agreed powers each agency has, and also information about the presence of media in the portfolio, and if so, what type.

The Last Step, but not the Least 

After completing the purchase, you should have an unmasked file with all the information about each debtor (social security number, original account number, address of the debtor, and date of birth) in your hands. All this must be transferred to you by the seller.

Using these steps, you will be able to understand how to go through the process of buying debt and what you, as a passive debt investor, need to know and what to pay special attention to.

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