Buy debt to make money

By Joe Palumbo III

What is the next great investment opportunity? I spoke with James Wiedenbeck, president of WNY Portfolio Management. He gave me his take on the debt purchasing industry as a solid investment avenue with which to make money. But can you make money purchasing something already owed?

Wiedenbeck said he has seen industry trends which are going to allow for large profits to be made in the immediate future. Purchasing debt as an investment is buying receivables that someone owes at a discounted rate from a bank and having that person settle with you for more money.

Say you purchase a $250,000 face value debt portfolio for a reduced rate of 8 cents on the dollar — or a $20,000 purchase price. The investor buys the receivables at a low price because the bank is looking to get something liquid on its money and write the debt off as a loss. Compromise and settle with the debtors on your debt portfolio for about 30 percent of what they owe.

For debtors, it is a great deal because they are saving — in this example — 70 percent of what was originally due. Settling can range from lower to higher percentages. For investors, it is a return on their money. Let us say the debtor owed $1,000. The debtor only paid $300 to settle that debt, of which the investor only paid $80.

The next question is how do you collect? Hire a licensed collection agency and have it collect for you. Even if you split 50-50 with the collection firm, you still come out ahead.

So How's Business regarding debt purchasing as an investment? In our economic downturn, consumers are getting smarter about their credit and realizing what “bad credit” can do to their futures. That is going to have people looking to settle debts. Like with all investments, there is always a risk of loss.

Reach Joe Palumbo at 516-248-0256 or [email protected].

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