Quick 2 Step Debt Portfolio Overview - Collection Agency +
Debt Buyer + Investor
Debt Buyer 101
Portfolio - Unpaid Principal Balance (UPB): $5,000,000
Portfolios are acquired at deep discounts to their UPB, for example, the above portfolio would have an acquisition cost of approximately $75,000 which represents 150bps of the UPB.
Acquired portfolios are monetized in several ways at management’s discretion.
Portfolios placed with a collection agency will have a net monthly return from the gross collection efforts. 35-55% of the returns are paid to the collection agency.
The net monthly return will pay 30-40% to investors leaving the balance of the net monthly remittance for reinvestment and management fees.
Some portfolios can be immediately sold to a third party in an almost riskless transaction. A portfolio for 150bps and immediately sold for 195bps returned a profit of 45bps. For transactions that are not funded by the firm, the total net return after acquisition costs would be split between the firm and the investor according to predetermined terms (splits are typically 60% Firm / 40% Investor). Applying this example to the above-referenced portfolio would have resulted in a profit to the investor of $8,000 with the balance of the proceeds accruing to the Firm.
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